Was The Smart Money Right About MicroStrategy Incorporated (MSTR)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. With this in mind let’s see whether MicroStrategy Incorporated (NASDAQ:MSTR) makes for a good investment at the moment.

Is MicroStrategy Incorporated (NASDAQ:MSTR) undervalued? The smart money is turning bullish. The number of long hedge fund bets went up by 3 in recent months. Our calculations also showed that MSTR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

To the average investor there are numerous methods market participants use to value their holdings. Some of the most underrated methods are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can outclass their index-focused peers by a healthy margin (see the details here).


Paul Tudor Jones of Tudor Investment Corp

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the new hedge fund action surrounding MicroStrategy Incorporated (NASDAQ:MSTR).

What have hedge funds been doing with MicroStrategy Incorporated (NASDAQ:MSTR)?

At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MSTR over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

The largest stake in MicroStrategy Incorporated (NASDAQ:MSTR) was held by Arrowstreet Capital, which reported holding $19.4 million worth of stock at the end of September. It was followed by Lynrock Lake with a $18.7 million position. Other investors bullish on the company included Winton Capital Management, D E Shaw, and AQR Capital Management. In terms of the portfolio weights assigned to each position Clearline Capital allocated the biggest weight to MicroStrategy Incorporated (NASDAQ:MSTR), around 2.46% of its 13F portfolio. Lynrock Lake is also relatively very bullish on the stock, designating 1.91 percent of its 13F equity portfolio to MSTR.

With a general bullishness amongst the heavyweights, some big names have jumped into MicroStrategy Incorporated (NASDAQ:MSTR) headfirst. ExodusPoint Capital, managed by Michael Gelband, established the most valuable position in MicroStrategy Incorporated (NASDAQ:MSTR). ExodusPoint Capital had $0.7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Parvinder Thiara’s Athanor Capital, Paul Tudor Jones’s Tudor Investment Corp, and Donald Sussman’s Paloma Partners.

Let’s also examine hedge fund activity in other stocks similar to MicroStrategy Incorporated (NASDAQ:MSTR). We will take a look at Industrial Logistics Properties Trust (NASDAQ:ILPT), Methode Electronics Inc. (NYSE:MEI), Trinseo S.A. (NYSE:TSE), and Marcus & Millichap Inc (NYSE:MMI). This group of stocks’ market caps match MSTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ILPT 13 83062 1
MEI 14 117121 2
TSE 18 90904 3
MMI 13 123525 -3
Average 14.5 103653 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $108 million in MSTR’s case. Trinseo S.A. (NYSE:TSE) is the most popular stock in this table. On the other hand Industrial Logistics Properties Trust (NASDAQ:ILPT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks MicroStrategy Incorporated (NASDAQ:MSTR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately MSTR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MSTR were disappointed as the stock returned -14.1% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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