Is Mercadolibre Inc (NASDAQ:MELI) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to find the latest market-moving information.
Is Mercadolibre Inc (NASDAQ:MELI) ready to rally soon? Investors who are in the know are in a bearish mood. The number of long hedge fund positions decreased by 2 recently. Our calculations also showed that MELI isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to review the new hedge fund action encompassing Mercadolibre Inc (NASDAQ:MELI).
What have hedge funds been doing with Mercadolibre Inc (NASDAQ:MELI)?
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in MELI over the last 13 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Mercadolibre Inc (NASDAQ:MELI) was held by Lone Pine Capital, which reported holding $607.8 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $425.6 million position. Other investors bullish on the company included Generation Investment Management, Tiger Global Management LLC, and Dorsal Capital Management.
Because Mercadolibre Inc (NASDAQ:MELI) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds that elected to cut their entire stakes heading into Q3. Intriguingly, Ken Griffin’s Citadel Investment Group dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $161.6 million in stock. Robert Henry Lynch’s fund, Aristeia Capital, also cut its stock, about $108.4 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Mercadolibre Inc (NASDAQ:MELI) but similarly valued. These stocks are Lennar Corporation (NYSE:LEN), Broadridge Financial Solutions, Inc. (NYSE:BR), Mettler-Toledo International Inc. (NYSE:MTD), and CoStar Group Inc (NASDAQ:CSGP). This group of stocks’ market caps are closest to MELI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEN | 66 | 2818386 | 3 |
| BR | 33 | 536012 | 10 |
| MTD | 16 | 325551 | -2 |
| CSGP | 29 | 884981 | 3 |
| Average | 36 | 1141233 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1.14 billion. That figure was $1.98 billion in MELI’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Mettler-Toledo International Inc. (NYSE:MTD) is the least popular one with only 16 bullish hedge fund positions. Mercadolibre Inc (NASDAQ:MELI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LEN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
