Is NetEase, Inc (NTES) A Good Stock To Buy?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about NetEase, Inc (NASDAQ:NTES).

Is NTES a good stock to buy? NetEase, Inc (NASDAQ:NTES) has seen a decrease in hedge fund sentiment of late. NetEase, Inc (NASDAQ:NTES) was in 32 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 49. Our calculations also showed that NTES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Rajiv Jain of GQG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a look at the key hedge fund action encompassing NetEase, Inc (NASDAQ:NTES).

Do Hedge Funds Think NTES Is A Good Stock To Buy Now?

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NTES over the last 25 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is NTES A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Orbis Investment Management, managed by William B. Gray, holds the largest position in NetEase, Inc (NASDAQ:NTES). Orbis Investment Management has a $1.3931 billion position in the stock, comprising 9.6% of its 13F portfolio. Coming in second is Fisher Asset Management, managed by Ken Fisher, which holds a $149.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Daniel Sundheim’s D1 Capital Partners, Panayotis Takis Sparaggis’s Alkeon Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Orbis Investment Management allocated the biggest weight to NetEase, Inc (NASDAQ:NTES), around 9.57% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, dishing out 2.32 percent of its 13F equity portfolio to NTES.

Seeing as NetEase, Inc (NASDAQ:NTES) has experienced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their positions entirely in the third quarter. Intriguingly, Rajiv Jain’s GQG Partners dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at close to $319.4 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund said goodbye to about $190.2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 11 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NetEase, Inc (NASDAQ:NTES) but similarly valued. These stocks are Air Products & Chemicals, Inc. (NYSE:APD), Ford Motor Company (NYSE:F), ING Groep N.V. (NYSE:ING), Twilio Inc. (NYSE:TWLO), Emerson Electric Co. (NYSE:EMR), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), and Relx PLC (NYSE:RELX). This group of stocks’ market valuations resemble NTES’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APD 32 528730 -8
F 51 1642491 -4
ING 8 693351 -1
TWLO 96 6369513 -2
EMR 41 671007 -4
CRWD 74 6742307 8
RELX 7 66312 1
Average 44.1 2387673 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.1 hedge funds with bullish positions and the average amount invested in these stocks was $2388 million. That figure was $2327 million in NTES’s case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 7 bullish hedge fund positions. NetEase, Inc (NASDAQ:NTES) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NTES is 27.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. A small number of hedge funds were also right about betting on NTES as the stock returned 26.4% since the end of the third quarter (through 11/30) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.