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 Zepp Health Corporation (NYSE:ZEPP).
Is Zepp Health Corporation (NYSE:ZEPP) a bargain? The best stock pickers were turning bullish. The number of bullish hedge fund bets advanced by 1 lately. Zepp Health Corporation (NYSE:ZEPP) was in 5 hedge funds’ portfolios at the end of March. The all time high for this statistic is 9. Our calculations also showed that ZEPP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a glance at the key hedge fund action surrounding Zepp Health Corporation (NYSE:ZEPP).
Do Hedge Funds Think ZEPP Is A Good Stock To Buy Now?
At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in ZEPP a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Zepp Health Corporation (NYSE:ZEPP), with a stake worth $1.7 million reported as of the end of March. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $1.6 million. Renaissance Technologies, Citadel Investment Group, and PEAK6 Capital Management 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 0 allocated the biggest weight to Zepp Health Corporation (NYSE:ZEPP), around 0.0025% of its 13F portfolio. 0 is also relatively very bullish on the stock, designating 0.0014 percent of its 13F equity portfolio to ZEPP.
Now, some big names were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in Zepp Health Corporation (NYSE:ZEPP). Citadel Investment Group had $1.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1.6 million position during the quarter. The following funds were also among the new ZEPP investors: Renaissance Technologies, Ken Griffin’s Citadel Investment Group, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks similar to Zepp Health Corporation (NYSE:ZEPP). These stocks are Rafael Holdings, Inc. (NYSE:RFL), Cass Information Systems (NASDAQ:CASS), Provention Bio, Inc. (NASDAQ:PRVB), Aemetis, Inc (NASDAQ:AMTX), American Public Education, Inc. (NASDAQ:APEI), HCI Group Inc (NYSE:HCI), and Tribune Publishing Company (NASDAQ:TPCO). All of these stocks’ market caps are similar to ZEPP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RFL | 8 | 47979 | 1 |
| CASS | 9 | 25992 | 5 |
| PRVB | 11 | 55520 | 1 |
| AMTX | 15 | 101763 | 11 |
| APEI | 14 | 154577 | 0 |
| HCI | 15 | 64560 | 8 |
| TPCO | 14 | 267827 | 0 |
| Average | 12.3 | 102603 | 3.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $5 million in ZEPP’s case. Aemetis, Inc (NASDAQ:AMTX) is the most popular stock in this table. On the other hand Rafael Holdings, Inc. (NYSE:RFL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Zepp Health Corporation (NYSE:ZEPP) is even less popular than RFL. Our overall hedge fund sentiment score for ZEPP is 22.7. 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. Hedge funds dodged a bullet by taking a bearish stance towards ZEPP. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th but managed to beat the market again by 6.1 percentage points. Unfortunately ZEPP wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); ZEPP investors were disappointed as the stock returned 1.1% since the end of the first quarter (through 6/18) 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 most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.