Did Hedge Funds Get Electronic Arts Inc. (EA) Right?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Electronic Arts Inc. (NASDAQ:EA) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Electronic Arts Inc. (NASDAQ:EA) was in 53 hedge funds’ portfolios at the end of September. The all time high for this statistic is 79. EA has seen a decrease in hedge fund interest of late. There were 56 hedge funds in our database with EA holdings at the end of June. Our calculations also showed that EA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a glance at the recent hedge fund action regarding Electronic Arts Inc. (NASDAQ:EA).

Noam Gottesman of GLG Partners

Do Hedge Funds Think EA Is A Good Stock To Buy Now?

At third quarter’s end, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in EA over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Electronic Arts Inc. (NASDAQ:EA) was held by Citadel Investment Group, which reported holding $175.3 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $148.5 million position. Other investors bullish on the company included Scopus Asset Management, Atreides Management, and D E Shaw. In terms of the portfolio weights assigned to each position Force Hill Capital Management allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 3.68% of its 13F portfolio. Adam Capital is also relatively very bullish on the stock, setting aside 2.9 percent of its 13F equity portfolio to EA.

Seeing as Electronic Arts Inc. (NASDAQ:EA) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers who sold off their entire stakes heading into Q4. At the top of the heap, Gil Simon’s SoMa Equity Partners dropped the largest stake of the 750 funds monitored by Insider Monkey, totaling about $71.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $39.1 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Electronic Arts Inc. (NASDAQ:EA) but similarly valued. We will take a look at Constellation Brands, Inc. (NYSE:STZ), Sempra (NYSE:SRE), Aptiv PLC (NYSE:APTV), Baxter International Inc. (NYSE:BAX), SYSCO Corporation (NYSE:SYY), STMicroelectronics N.V. (NYSE:STM), and Cintas Corporation (NASDAQ:CTAS). This group of stocks’ market values are closest to EA’s market value.

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As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1475 million. That figure was $1097 million in EA’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 11 bullish hedge fund positions. Electronic Arts Inc. (NASDAQ:EA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EA is 72.1. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, EA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EA were disappointed as the stock returned -6.6% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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