Is ZNGA A Good Stock To Buy Now?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Zynga Inc (NASDAQ:ZNGA) makes for a good investment right now.

Is ZNGA a good stock to buy now? Zynga Inc (NASDAQ:ZNGA) has experienced a decrease in support from the world’s most elite money managers lately. Zynga Inc (NASDAQ:ZNGA) was in 48 hedge funds’ portfolios at the end of September. The all time high for this statistic is 59. There were 52 hedge funds in our database with ZNGA holdings at the end of June. Our calculations also showed that ZNGA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to analyze the recent hedge fund action regarding Zynga Inc (NASDAQ:ZNGA).

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

At third quarter’s end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the second quarter of 2020. By comparison, 40 hedge funds held shares or bullish call options in ZNGA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is ZNGA A Good Stock To Buy?

More specifically, Cadian Capital was the largest shareholder of Zynga Inc (NASDAQ:ZNGA), with a stake worth $168.7 million reported as of the end of September. Trailing Cadian Capital was Iridian Asset Management, which amassed a stake valued at $138.6 million. Arrowstreet Capital, Two Sigma Advisors, and Newbrook Capital Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Shelter Haven Capital Management allocated the biggest weight to Zynga Inc (NASDAQ:ZNGA), around 14.12% of its 13F portfolio. Tiger Legatus Capital is also relatively very bullish on the stock, designating 8.4 percent of its 13F equity portfolio to ZNGA.

Because Zynga Inc (NASDAQ:ZNGA) has faced a decline in interest from hedge fund managers, we can see that there exists a select few funds who were dropping their entire stakes in the third quarter. It’s worth mentioning that Joe Milano’s Greenhouse Funds dumped the largest position of the 750 funds monitored by Insider Monkey, comprising about $34.5 million in stock. Michael Rockefeller and KarláKroeker’s fund, Woodline Partners, also dropped its stock, about $34.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Zynga Inc (NASDAQ:ZNGA) but similarly valued. We will take a look at Sunrun Inc (NASDAQ:RUN), Pegasystems Inc. (NASDAQ:PEGA), NetApp Inc. (NASDAQ:NTAP), Lamb Weston Holdings, Inc. (NYSE:LW), UDR, Inc. (NYSE:UDR), Brookfield Renewable Partners L.P. (NYSE:BEP), and WPP Plc (NASDAQ:WPP). All of these stocks’ market caps are similar to ZNGA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RUN 29 3270810 8
PEGA 32 1866556 4
NTAP 31 429263 6
LW 27 204303 2
UDR 26 353647 -3
BEP 17 250013 12
WPP 7 29329 -2
Average 24.1 914846 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $915 million. That figure was $960 million in ZNGA’s case. Pegasystems Inc. (NASDAQ:PEGA) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Zynga Inc (NASDAQ:ZNGA) is more popular among hedge funds. Our overall hedge fund sentiment score for ZNGA is 75.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Unfortunately ZNGA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZNGA were disappointed as the stock returned -3.1% since the end of the third quarter (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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