How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Moody’s Corporation (NYSE:MCO) and determine whether hedge funds had an edge regarding this stock.
Moody’s Corporation (NYSE:MCO) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Moody’s Corporation (NYSE:MCO) was in 58 hedge funds’ portfolios at the end of September. The all time high for this statistic is 61. Our calculations also showed that MCO 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 let’s review the fresh hedge fund action encompassing Moody’s Corporation (NYSE:MCO).
Warren Buffett of Berkshire Hathaway
Do Hedge Funds Think MCO Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 60 hedge funds with a bullish position in MCO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Berkshire Hathaway was the largest shareholder of Moody’s Corporation (NYSE:MCO), with a stake worth $8760.5 million reported as of the end of September. Trailing Berkshire Hathaway was TCI Fund Management, which amassed a stake valued at $2330.5 million. Akre Capital Management, Valley Forge Capital, and Ako Capital 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 Rings Capital Management allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 37.97% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, designating 16.31 percent of its 13F equity portfolio to MCO.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Oribel Capital Management, managed by Mikal Patel, initiated the biggest call position in Moody’s Corporation (NYSE:MCO). Oribel Capital Management had $76.3 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $37.9 million position during the quarter. The following funds were also among the new MCO investors: Paul Tudor Jones’s Tudor Investment Corp, D. E. Shaw’s D E Shaw, and Jaime Sterne’s Skye Global Management.
Let’s now review hedge fund activity in other stocks similar to Moody’s Corporation (NYSE:MCO). These stocks are The Southern Company (NYSE:SO), ICICI Bank Limited (NYSE:IBN), Illinois Tool Works Inc. (NYSE:ITW), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Intercontinental Exchange Inc (NYSE:ICE), Bank of Montreal (NYSE:BMO), and Aon plc (NYSE:AON). All of these stocks’ market caps match MCO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SO | 30 | 676309 | -7 |
| IBN | 28 | 2621460 | 0 |
| ITW | 39 | 422271 | -6 |
| REGN | 44 | 1318026 | -4 |
| ICE | 48 | 2832226 | 1 |
| BMO | 12 | 142342 | 0 |
| AON | 47 | 6005008 | -21 |
| Average | 35.4 | 2002520 | -5.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $2003 million. That figure was $15700 million in MCO’s case. Intercontinental Exchange Inc (NYSE:ICE) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Moody’s Corporation (NYSE:MCO) is more popular among hedge funds. Our overall hedge fund sentiment score for MCO is 88.5. 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 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 still beat the market by 3.6 percentage points. Unfortunately, MCO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MCO were disappointed as the stock returned -3.3% since the end of the third quarter (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.
Follow Moodys Corp (NYSE:MCO)
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Disclosure: None. This article was originally published at Insider Monkey.
