Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Visa Inc (NYSE:V) changed recently.
Is Visa Inc (NYSE:V) a cheap stock to buy now? The smart money is becoming hopeful. The number of bullish hedge fund bets went up by 15 lately. Our calculations also showed that V currently ranks #7 among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). V was in 132 hedge funds’ portfolios at the end of the third quarter of 2019. There were 117 hedge funds in our database with V 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Glen Kacher of Light Street Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to analyze the latest hedge fund action surrounding Visa Inc (NYSE:V).
What have hedge funds been doing with Visa Inc (NYSE:V)?
Heading into the fourth quarter of 2019, a total of 132 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in V over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Visa Inc (NYSE:V) was held by Fisher Asset Management, which reported holding $3474.7 million worth of stock at the end of September. It was followed by Berkshire Hathaway with a $1816.8 million position. Other investors bullish on the company included Arrowstreet Capital, Akre Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Hengistbury Investment Partners allocated the biggest weight to Visa Inc (NYSE:V), around 45.26% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, dishing out 18.54 percent of its 13F equity portfolio to V.
Consequently, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, created the biggest call position in Visa Inc (NYSE:V). Millennium Management had $61 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also made a $49.5 million investment in the stock during the quarter. The other funds with brand new V positions are Bo Shan’s Gobi Capital, Glen Kacher’s Light Street Capital, and Christopher James’s Partner Fund Management.
Let’s now review hedge fund activity in other stocks similar to Visa Inc (NYSE:V). We will take a look at JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), and Nestle SA (OTCMKTS:NSRGY). This group of stocks’ market valuations resemble V’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JPM | 84 | 11167465 | -6 |
| JNJ | 76 | 7326703 | 13 |
| WMT | 56 | 5584105 | 0 |
| NSRGY | 4 | 1831756 | 0 |
| Average | 55 | 6477507 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $6478 million. That figure was $15686 million in V’s case. JPMorgan Chase & Co. (NYSE:JPM) is the most popular stock in this table. On the other hand Nestle SA (OTCMKTS:NSRGY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Visa Inc (NYSE:V) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on V as the stock returned 42.7% so far in 2019 (through 12/23) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
