Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Mercadolibre Inc (NASDAQ:MELI) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Mercadolibre Inc (NASDAQ:MELI) shareholders have witnessed an increase in enthusiasm from smart money of late. Our calculations also showed that MELI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Andreas Halvorsen of Viking Global
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s review the fresh hedge fund action encompassing Mercadolibre Inc (NASDAQ:MELI).
Hedge fund activity in Mercadolibre Inc (NASDAQ:MELI)
At Q4’s end, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in MELI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Lone Pine Capital was the largest shareholder of Mercadolibre Inc (NASDAQ:MELI), with a stake worth $555.2 million reported as of the end of September. Trailing Lone Pine Capital was Alkeon Capital Management, which amassed a stake valued at $429 million. Viking Global, Generation Investment Management, and Tybourne 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 Think Investments allocated the biggest weight to Mercadolibre Inc (NASDAQ:MELI), around 12.24% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, earmarking 11.08 percent of its 13F equity portfolio to MELI.
As one would reasonably expect, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in Mercadolibre Inc (NASDAQ:MELI). Balyasny Asset Management had $49.1 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $28.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Carl Anderson’s Marcho Partners, Leon Shaulov’s Maplelane Capital, and Campbell Wilson’s Old Well Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mercadolibre Inc (NASDAQ:MELI) but similarly valued. These stocks are Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), KLA Corporation (NASDAQ:KLAC), AutoZone, Inc. (NYSE:AZO), and Southwest Airlines Co. (NYSE:LUV). This group of stocks’ market valuations match MELI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TLK | 8 | 210873 | 0 |
| KLAC | 30 | 700266 | -2 |
| AZO | 40 | 1597360 | 0 |
| LUV | 44 | 3650217 | 4 |
| Average | 30.5 | 1539679 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1540 million. That figure was $2810 million in MELI’s case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Mercadolibre Inc (NASDAQ:MELI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on MELI as the stock returned -5.6% so far in Q1 (through March 9th) 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.
