Hedge Funds Are Still Into Square, Inc. (SQ)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Square, Inc. (NYSE:SQ) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Square, Inc. (NYSE:SQ) a marvelous investment right now? The best stock pickers are getting less bullish but the overall sentiment is still very encouraging. The number of bullish hedge fund bets decreased by 9 in recent months. Our calculations also showed that SQ isn’t among the 30 most popular stocks among hedge funds. SQ was in 44 hedge funds’ portfolios at the end of the third quarter of 2019. There were 53 hedge funds in our database with SQ holdings at the end of the previous quarter.

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. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Philippe Laffont of Coatue Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action regarding Square, Inc. (NYSE:SQ).

How are hedge funds trading Square, Inc. (NYSE:SQ)?

At the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in SQ a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Viking Global, managed by Andreas Halvorsen, holds the number one position in Square, Inc. (NYSE:SQ). Viking Global has a $621.4 million position in the stock, comprising 3.2% of its 13F portfolio. On Viking Global’s heels is Lone Pine Capital, with a $496.2 million position; 2.9% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish include Philippe Laffont’s Coatue Management, Brian Bares’s Bares Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position ThornTree Capital Partners allocated the biggest weight to Square, Inc. (NYSE:SQ), around 10.07% of its portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 9.04 percent of its 13F equity portfolio to SQ.

Judging by the fact that Square, Inc. (NYSE:SQ) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who sold off their full holdings in the third quarter. Intriguingly, Josh Resnick’s Jericho Capital Asset Management sold off the biggest stake of the 750 funds followed by Insider Monkey, worth close to $78.8 million in stock, and Alex Sacerdote’s Whale Rock Capital Management was right behind this move, as the fund sold off about $52 million worth. These moves are interesting, as total hedge fund interest was cut by 9 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Square, Inc. (NYSE:SQ). These stocks are Southern Copper Corporation (NYSE:SCCO), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), AutoZone, Inc. (NYSE:AZO), and FirstEnergy Corp. (NYSE:FE). This group of stocks’ market valuations are similar to SQ’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $1077 million. That figure was $2375 million in SQ’s case. AutoZone, Inc. (NYSE:AZO) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Square, Inc. (NYSE:SQ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on SQ as the stock returned 9.4% during Q4 (through 11/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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