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 iQIYI, Inc. (NASDAQ:IQ).
iQIYI, Inc. (NASDAQ:IQ) has experienced a decrease in enthusiasm from smart money lately. iQIYI, Inc. (NASDAQ:IQ) was in 23 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 40. Our calculations also showed that IQ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Lei Zhang of Hillhouse Capital Management
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 view the new hedge fund action encompassing iQIYI, Inc. (NASDAQ:IQ).
Do Hedge Funds Think IQ Is A Good Stock To Buy Now?
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the second quarter of 2021. By comparison, 18 hedge funds held shares or bullish call options in IQ a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Hillhouse Capital Management held the most valuable stake in iQIYI, Inc. (NASDAQ:IQ), which was worth $310.3 million at the end of the third quarter. On the second spot was Millennium Management which amassed $35.7 million worth of shares. Long Corridor Asset Management, Citadel Investment Group, and Tiger Pacific 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 Long Corridor Asset Management allocated the biggest weight to iQIYI, Inc. (NASDAQ:IQ), around 31.05% of its 13F portfolio. Long Corridor Asset Management is also relatively very bullish on the stock, dishing out 20.08 percent of its 13F equity portfolio to IQ.
Due to the fact that iQIYI, Inc. (NASDAQ:IQ) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies who sold off their entire stakes heading into Q4. Intriguingly, Joseph Samuels’s Islet Management dropped the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $46.7 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $36.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as iQIYI, Inc. (NASDAQ:IQ) but similarly valued. We will take a look at Kingsoft Cloud Holdings Limited (NASDAQ:KC), Hutchison China MediTech Limited (NASDAQ:HCM), Perrigo Co Plc (NASDAQ:PRGO), Columbia Sportswear Company (NASDAQ:COLM), Rapid7 Inc (NASDAQ:RPD), Houlihan Lokey Inc (NYSE:HLI), and II-VI, Inc. (NASDAQ:IIVI). This group of stocks’ market caps are closest to IQ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KC | 12 | 31613 | 0 |
| HCM | 9 | 53145 | -1 |
| PRGO | 23 | 430196 | -5 |
| COLM | 21 | 250448 | -8 |
| RPD | 24 | 167106 | 7 |
| HLI | 18 | 183140 | 0 |
| IIVI | 24 | 250417 | -5 |
| Average | 18.7 | 195152 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $477 million in IQ’s case. Rapid7 Inc (NASDAQ:RPD) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 9 bullish hedge fund positions. iQIYI, Inc. (NASDAQ:IQ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IQ is 64.9. 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 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately IQ wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on IQ were disappointed as the stock returned -38.1% since the end of September (through 12/9) 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 many of these stocks already outperformed the market since 2019.
Follow Iqiyi Inc. (NASDAQ:IQ)
Follow Iqiyi Inc. (NASDAQ:IQ)
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Disclosure: None. This article was originally published at Insider Monkey.
