In this article, we discuss the 5 stocks hedge funds are dumping amid the tech selloff in 2022. In order to read our detailed review of the latest market situation around tech stocks, go directly to Tech Selloff: Hedge Funds are Dumping These 10 Stocks in 2022.
5. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 77
Decline in Hedge Fund Holders: 31
Sea Limited (NYSE:SE) provides a range of e-commerce, fintech and digital entertainment services around the world. It is based in Singapore, and operates e-commerce platform Shopee, and provides payment processing services through its brands ShopeePay, SPayLater, and SeaBank.
Shares of the company have experienced a decline of 66.10% so far in the year as of May 25, and hedge fund sentiment is also negative around the stock. 77 hedge funds owned positions in Sea Limited (NYSE:SE) at the end of Q1 2022, down from 108 hedge funds a quarter earlier.
HSBC analyst Piyush Choudhary reiterated a ‘Buy’ rating on Sea Limited (NYSE:SE) shares on May 4, and lowered the price target to $145 from $150. The analyst expects the firm’s e-commerce platform Shopee to post a jump of 40% in gross merchandise volume in comparison to last year, and sees Sea Limited’s (NYSE:SE) adjusted revenue growing 32% year-over-year in the first quarter.
For the first quarter, Sea Limited (NYSE:SE) reported earnings per share which beat market estimates by $0.42. $2.9 billion in revenue for the quarter outperformed analysts’ forecasts by $41.2 million, and showed a jump of 64.41% from the year-ago quarter.
Here is what investment firm Farrer Wealth Advisors had to say about Sea Limited (NYSE:SE) in its Q1 2022 investor letter.
“Sea Limited had been selling off since its peak in early November of ~$363/share. This was driven by both a general sell off in tech, especially non-profitable tech, and a general belief that its gaming arm (Garena) was experiencing a slowdown due to its flagship game Free Fire. Free Fire has experienced a slowdown for three reasons: it is a victim of its own success, and by the end of Q321, nearly 10% of the world’s population already played the game, and thus reaching new users was difficult; A return to normal with people traveling/going out more and spending less time playing games; and the Indian market imposed a ban on the game due to anti-Chinese sentiment (Tencent is a large shareholder in Sea). We believed that these issues, while worth considering, were a bit overblown, and some of the data we saw from 3rd party sources showed that though Free Fire usage was dipping, it wasn’t too drastic. Thus, we marginally added to the position throughout the quarter. This was a mistake. During Sea’s earnings report in early March, the company guidance for Garena (down nearly 35% yoy) showed that the slowdown was far worse than predicted. Secondly, Shopee (Sea’s ecommerce arm) has pulled out of certain markets (in Europe and India), which long-term is probably the right strategy, but short-term hampers the optionality of the business. After considering this information and the guidance from earnings, we decided to significantly trim the position. In our opinion, management does have a bit of egg on its face from an overly aggressive expansion or as one investor called it, “bull market hubris.” We think management’s moves were mostly logical, it’s just that their failures came during an unforgiving market. While we believe that Sea’s future is still bright (especially with regards to their e-commerce and financial services), it will take a few quarters of strong earnings for them to regain their momentum, and for now the capital can be better spent elsewhere.”
4. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 80
Decline in Hedge Fund Holders: 11
Tesla, Inc. (NASDAQ:TSLA) deals in the production of electric vehicles. The market is reacting negatively to a spate of bad news coming from the company, such as slowing production and sales in China owing to Covid lockdowns, and distraction from founder Elon Musk’s proposed $44 billion bid to acquire Twitter. Investors feel Musk may sell shares of Tesla to finance his bid for Twitter, and subsequently the shares of the EV-maker have dropped 24.83% in the last one month, and 45.09% in the year to date as of May 25.
Daiwa analyst Jairam Nathan on May 24 slashed the firm’s price target on Tesla, Inc. (NASDAQ:TSLA) to $800 from $1,150 and reiterated an ‘Outperform’ rating on the company shares.
At the close of Q1, a total of 80 hedge funds from the database of Insider Monkey reported bullish bets on Tesla, Inc. (NASDAQ:TSLA) shares, showing a negative trend from the preceding quarter where 91 hedge funds held positions in the company.
Baron Funds, an investment firm, shared its views on Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter. The fund said:
“During the first quarter, we bought back shares in Tesla, Inc., which designs, manufactures, and sells electric vehicles, solar products, energy storage solutions, and batteries. We believe that despite the run in the stock over the last few years, Tesla presents a favorable risk/reward profile and remains a Big Idea with only about 1% market share of the automotive market. Since we bought the stock during the first quarter, shares increased 27.1%, despite a complex supply-chain environment, on continued revenue growth and record profitability. Robust demand and operational optimization allow the company to offset inflationary pressures while vertical integration provides flexibility around supply bottlenecks. Moreover, we expect new localized manufacturing capacity to drive additional efficiencies while software initiatives, including the autonomous driving program, are accelerating, offering valuable optionality to the stock.”
3. Block, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 84
Decline in Hedge Fund Holders: 12
Block, Inc. (NYSE:SQ) provides financial services through its brands including Square, Cash App, TIDAL, and Spiral. It was founded by Twitter boss Jack Dorsey in 2009, and is headquartered in California. As part of the market sell-off in tech, shares of the company have posted a loss of 52.48% in the year to date as of May 25.
Investors dumped their positions in Block, Inc. (NYSE:SQ) at the close of the first quarter, where 84 hedge funds reported holding stakes in the company. This is in comparison to 96 hedge funds in the previous quarter.
On May 23, analyst Andrew Jeffrey from Truist cut his price target on Block, Inc. (NYSE:SQ) to $145 from $165, but maintained a ‘Buy’ rating on the company shares. The analyst decreased the price target owing to reduced valuations, but feels Block can become one of the world’s most important fintech firms, rivalling big names such as Visa Inc. (NYSE:V). The company’s business fundamentals are poorly understood, according to Jeffrey, who says this creates a good opportunity for long-term investors.
Farrer Wealth Advisors, an investment firm, discussed the prospects of Block, Inc. (NYSE:SQ) in its Q1 2022 investor letter. It said:
“Block (formerly Square): We ‘adopted’ Block’s stock after the company bought Afterpay, which we were investors in. We had been trimming the Afterpay position throughout 2021 and trimmed again after the acquisition, so the position was quite small. We held onto that small portion, as we did think the acquisition made sense and were excited to see the two companies integrate and for Block to create a closed loop network between merchants and consumers. However, the market punished most highly valued tech stocks over the last months, and we saw the position move against us by over 50%. We are firm believers that when a stock goes against you by 50%+, you need to do something about it. Either trim/sell and reinvest or buy more. In the case of Block, the original reason for holding was to see how the acquisition and integration with Afterpay panned out. The market did not give us the time to see this play out, thus we were not comfortable adding more to the position. Further for the stock to recover to our purchase price, we felt the company’s valuation would need to command a future exit multiple that the market would be unlikely to pay in this environment. Given this, we exited the remainder of the position.”
2. Paypal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 100
Decline in Hedge Fund Holders: 10
Paypal Holdings, Inc. (NASDAQ:PYPL) is a payment solutions provider which lets users send and receive money in 200 markets around the globe in approximately 100 currencies. Shares of the world’s most prominent digital payments company were not immune from the negative market sentiment around tech stocks, and as of May 25, they have slid 58.90% in the year to date.
110 hedge funds held positions in Paypal Holdings, Inc. (NASDAQ:PYPL) at the end of December, but this number dwindled down to 100 hedge funds at the close of the first quarter. In Q1 2022, Fisher Asset Management was the most prominent shareholder of the company, holding a gigantic stake worth more than $1.9 billion.
Analyst James Faucette of Morgan Stanley maintained an ‘Overweight’ rating on Paypal Holdings, Inc. (NASDAQ:PYPL) shares on May 10, and adjusted the price target to $137 from $139. He feels that the market is missing the firm’s outperformance as it continues to outpace underlying e-commerce growth. The company’s revenue trajectory has normalized since coming out of the pandemic, but this is not a structural issue according to the Morgan Stanley analyst.
Paypal Holdings, Inc. (NASDAQ:PYPL) posted its Q1 earnings at the end of April, and reported EPS in-line with estimates. $6.48 billion in revenue for the quarter beat analysts’ estimates by $75.6 million.
Investment firm Wedgewood Partners discussed the market position of PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q1 2022 investor letter. The fund said:
“PayPal also detracted from performance during the quarter as investors panicked in the face of the well-telegraphed run-off of eBay’s revenues. We have been aware of the runoff of eBay’s revenues since at least the third quarter of 2017.2 Although markets are supposedly efficient, maybe markets are only as efficient as long as the same shareholders are in the stock. When a shareholder base turns over several, if not dozens, of times over a 5-year time frame, perhaps old news periodically becomes “new” to a market riddled with transient shareholders. In any case, we increased our weightings in the stock for the first time since 2018 as the only thing “new”to us was the highly attractive multiple for a competitively wellpositioned business in the e-commerce industry.”
1. Meta Platforms, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 200
Decline in Hedge Fund Holders: 24
Meta Platforms, Inc. (NASDAQ:FB) is the parent company of Facebook, WhatsApp and Instagram. On May 16, Morgan Stanley analyst Brian Nowak gave an unchanged ‘Overweight’ rating to Meta Platforms, Inc. (NASDAQ:FB) shares, along with a price target of $330. He notes that the firm has significantly reduced its hiring and operating expenses per head, and this will result in cost discipline leading to significant free cash flow, and revenue acceleration in the second half of the year.
Out of all the hedge funds tracked by Insider Monkey, 200 reported bullish bets on Meta Platforms, Inc. (NASDAQ:FB) shares at the end of Q1 2022, with a collective price tag of $19.33 billion. This shows a negative trend from the previous quarter where 224 hedge funds owned $31.84 billion worth of positions in the tech giant.
You can also take a look at 10 Best Agriculture Stocks to Invest In and 15 Most Valuable IT Companies In The World.
