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Were Hedge Funds Right About Take-Two Interactive (TTWO)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

Is Take-Two Interactive Software, Inc. (NASDAQ:TTWO) a buy right now? Investors who are in the know are getting less bullish. The number of bullish hedge fund bets were cut by 1 in recent months. Our calculations also showed that TTWO 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). TTWO was in 59 hedge funds’ portfolios at the end of December. There were 60 hedge funds in our database with TTWO holdings at the end of the previous quarter.

In the 21st century investor’s toolkit there are a lot of metrics stock market investors put to use to size up stocks. Some of the most useful metrics are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outclass the broader indices by a significant margin (see the details here).

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Keeping this in mind we’re going to analyze the new hedge fund action surrounding Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

What does smart money think about Take-Two Interactive Software, Inc. (NASDAQ:TTWO)?

Heading into the first quarter of 2020, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TTWO over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Eminence Capital was the largest shareholder of Take-Two Interactive Software, Inc. (NASDAQ:TTWO), with a stake worth $153 million reported as of the end of September. Trailing Eminence Capital was Melvin Capital Management, which amassed a stake valued at $134.7 million. GLG Partners, Renaissance Technologies, and Alyeska 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 Hidden Lake Asset Management allocated the biggest weight to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), around 13.31% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, earmarking 9.13 percent of its 13F equity portfolio to TTWO.

Since Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has experienced declining sentiment from the smart money, logic holds that there were a few money managers that decided to sell off their full holdings last quarter. Interestingly, John Smith Clark’s Southpoint Capital Advisors said goodbye to the largest position of the “upper crust” of funds watched by Insider Monkey, valued at close to $125.3 million in stock. Andrew Immerman and Jeremy Schiffman’s fund, Palestra Capital Management, also cut its stock, about $98.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Take-Two Interactive Software, Inc. (NASDAQ:TTWO). We will take a look at Leidos Holdings Inc (NYSE:LDOS), W.P. Carey Inc. REIT (NYSE:WPC), Gartner Inc (NYSE:IT), and Liberty Global Plc (NASDAQ:LBTYK). This group of stocks’ market caps resemble TTWO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LDOS 27 467199 2
WPC 21 88287 6
IT 26 727134 4
LBTYK 44 3362668 0
Average 29.5 1161322 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1161 million. That figure was $1106 million in TTWO’s case. Liberty Global Plc (NASDAQ:LBTYK) is the most popular stock in this table. On the other hand W.P. Carey Inc. REIT (NYSE:WPC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Take-Two Interactive Software, Inc. (NASDAQ:TTWO) 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on TTWO as the stock returned 2.4% so far in 2020 (through April 20th) 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.
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.

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