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Zynga Inc (ZNGA): Hedge Funds Taking Some Chips Off The Table

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Zynga Inc (NASDAQ:ZNGA) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Zynga Inc (NASDAQ:ZNGA) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Zynga Inc (NASDAQ:ZNGA) was in 52 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that ZNGA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Harold Levy Iridian Asset Management

Harold Levy of Iridian Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to go over the key hedge fund action encompassing Zynga Inc (NASDAQ:ZNGA).

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

At the end of June, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZNGA over the last 20 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in Zynga Inc (NASDAQ:ZNGA) was held by Renaissance Technologies, which reported holding $165.5 million worth of stock at the end of September. It was followed by Iridian Asset Management with a $150.1 million position. Other investors bullish on the company included Cadian Capital, Two Sigma Advisors, and D E Shaw. In terms of the portfolio weights assigned to each position Shelter Haven Capital Management allocated the biggest weight to Zynga Inc (NASDAQ:ZNGA), around 7.55% of its 13F portfolio. Tiger Legatus Capital is also relatively very bullish on the stock, earmarking 6.9 percent of its 13F equity portfolio to ZNGA.

Due to the fact that Zynga Inc (NASDAQ:ZNGA) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers who were dropping their positions entirely last quarter. It’s worth mentioning that Bruce Emery’s Greenvale Capital sold off the biggest stake of all the hedgies tracked by Insider Monkey, worth an estimated $48 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $38.2 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Zynga Inc (NASDAQ:ZNGA). These stocks are PulteGroup, Inc. (NYSE:PHM), Suzano S.A. (NYSE:SUZ), Vistra Corp. (NYSE:VST), MGM Growth Properties LLC (NYSE:MGP), Kinross Gold Corporation (NYSE:KGC), PTC Inc (NASDAQ:PTC), and Dropbox, Inc. (NASDAQ:DBX). 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
PHM 42 866135 6
SUZ 3 28866 0
VST 42 1561642 3
MGP 32 569697 4
KGC 30 806038 2
PTC 40 1255947 5
DBX 51 1326475 7
Average 34.3 916400 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $916 million. That figure was $1095 million in ZNGA’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 3 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 77.4. 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 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately ZNGA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ZNGA were disappointed as the stock returned -5% since the end of the second quarter 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.

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