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Were Hedge Funds Right About Piling Into Zynga Inc (ZNGA)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Zynga Inc (NASDAQ:ZNGA) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Zynga Inc (NASDAQ:ZNGA) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. ZNGA was in 59 hedge funds’ portfolios at the end of March. There were 48 hedge funds in our database with ZNGA positions at the end of the previous quarter. Our calculations also showed that ZNGA isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are many indicators shareholders employ to appraise publicly traded companies. Some of the less known indicators are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outclass the market by a superb amount (see the details here).

Discovery Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the fresh hedge fund action regarding Zynga Inc (NASDAQ:ZNGA).

How have hedgies been trading Zynga Inc (NASDAQ:ZNGA)?

At the end of the first quarter, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ZNGA over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is ZNGA A Good Stock To Buy?

Among these funds, Iridian Asset Management held the most valuable stake in Zynga Inc (NASDAQ:ZNGA), which was worth $160.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $117.6 million worth of shares. Cadian Capital, Two Sigma Advisors, and Citadel Investment Group 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 Greenvale Capital allocated the biggest weight to Zynga Inc (NASDAQ:ZNGA), around 12.6% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, setting aside 6.69 percent of its 13F equity portfolio to ZNGA.

Consequently, key hedge funds have jumped into Zynga Inc (NASDAQ:ZNGA) headfirst. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, initiated the most valuable position in Zynga Inc (NASDAQ:ZNGA). Woodline Partners had $18.4 million invested in the company at the end of the quarter. Rob Citrone’s Discovery Capital Management also made a $14 million investment in the stock during the quarter. The other funds with new positions in the stock are Ben Gambill’s Tiger Eye Capital, Joseph Samuels’s Islet Management, and Andrew Kurita’s Kettle Hill Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Zynga Inc (NASDAQ:ZNGA). We will take a look at F5 Networks, Inc. (NASDAQ:FFIV), Wynn Resorts, Limited (NASDAQ:WYNN), Advance Auto Parts, Inc. (NYSE:AAP), and Aspen Technology, Inc. (NASDAQ:AZPN). All of these stocks’ market caps are closest to ZNGA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FFIV 32 940064 3
WYNN 40 403164 -4
AAP 38 839686 -4
AZPN 20 736673 -17
Average 32.5 729897 -5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $730 million. That figure was $1015 million in ZNGA’s case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Aspen Technology, Inc. (NASDAQ:AZPN) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Zynga Inc (NASDAQ:ZNGA) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ZNGA as the stock returned 39.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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