GameStop Corp. (NYSE:GME): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Is GameStop Corp. (NYSE:GME) the right pick for your portfolio? The smart money is taking an optimistic view. The number of long hedge fund bets moved up by 1 lately.

In the eyes of most shareholders, hedge funds are assumed to be underperforming, outdated financial tools of yesteryear. While there are over 8000 funds in operation at present, we at Insider Monkey choose to focus on the elite of this club, close to 450 funds. It is widely believed that this group controls the lion’s share of all hedge funds’ total asset base, and by keeping an eye on their highest performing investments, we have formulated a few investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 25 percentage points in 6.5 month (see all of our picks from August).

Just as beneficial, positive insider trading sentiment is a second way to break down the marketplace. There are a number of motivations for a corporate insider to cut shares of his or her company, but just one, very simple reason why they would buy. Plenty of empirical studies have demonstrated the impressive potential of this method if piggybackers know where to look (learn more here).

Now, it’s important to take a glance at the latest action surrounding GameStop Corp. (NYSE:GME).

What does the smart money think about GameStop Corp. (NYSE:GME)?

Heading into 2013, a total of 21 of the hedge funds we track were bullish in this stock, a change of 5% from the third quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially.

Of the funds we track, Chuck Royce’s Royce & Associates had the largest position in GameStop Corp. (NYSE:GME), worth close to $158 million, accounting for 0.5% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which held a $108 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include Phill Gross and Robert Atchinson’s Adage Capital Management, and John Murphy’s Alydar Capital.

Now, key money managers were leading the bulls’ herd. Alydar Capital, managed by John Murphy, assembled the largest position in GameStop Corp. (NYSE:GME). Alydar Capital had 24 million invested in the company at the end of the quarter. Pasco Alfaro / Richard Tumure’s Miura Global Management also made a $6 million investment in the stock during the quarter. The other funds with new positions in the stock are John Brennan’s Sirios Capital Management, Ward Davis and Brian Agnew’s Caerus Global Investors, and James Pallotta’s Raptor Capital Management.

Insider trading activity in GameStop Corp. (NYSE:GME)

Insider trading activity, especially when it’s bullish, is most useful when the primary stock in question has seen transactions within the past six months. Over the latest half-year time period, GameStop Corp. (NYSE:GME) has experienced zero unique insiders purchasing, and 1 insider sales (see the details of insider trades here).

With the returns shown by the aforementioned tactics, everyday investors should always pay attention to hedge fund and insider trading sentiment, and GameStop Corp. (NYSE:GME) is an important part of this process.

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Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.