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 Alibaba Group Holding Limited (NYSE:BABA).
Is Alibaba (BABA) stock a buy or sell? Investors who are in the know were cutting their exposure. The number of bullish hedge fund positions decreased by 10 in recent months. Alibaba Group Holding Limited (NYSE:BABA) was in 156 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 170. Our calculations also showed that BABA still ranked 7th among the 30 most popular stocks among hedge funds (click for Q4 rankings).
David Blood of Generation Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Alibaba Group Holding Limited (NYSE:BABA).
Do Hedge Funds Think BABA Is A Good Stock To Buy Now?
At Q4’s end, a total of 156 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards BABA over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Alibaba Group Holding Limited (NYSE:BABA) was held by Fisher Asset Management, which reported holding $3245.6 million worth of stock at the end of December. It was followed by Tiger Global Management LLC with a $1042.2 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Soroban Capital Partners. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 30% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, setting aside 29.98 percent of its 13F equity portfolio to BABA.
Seeing as Alibaba Group Holding Limited (NYSE:BABA) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds who were dropping their positions entirely heading into Q1. It’s worth mentioning that Rajiv Jain’s GQG Partners cut the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $2820.6 million in stock. Lei Zhang’s fund, Hillhouse Capital Management, also cut its stock, about $1188.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 10 funds heading into Q1.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Alibaba Group Holding Limited (NYSE:BABA) but similarly valued. These stocks are Facebook Inc (NASDAQ:FB), Visa Inc (NYSE:V), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Berkshire Hathaway Inc. (NYSE:BRK-B), Tesla Inc. (NASDAQ:TSLA), Walmart Inc. (NYSE:WMT), and Johnson & Johnson (NYSE:JNJ). All of these stocks’ market caps match BABA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FB | 242 | 38233910 | 12 |
| V | 166 | 23599162 | 6 |
| TSM | 72 | 11843403 | 5 |
| BRK-B | 110 | 20795968 | 1 |
| TSLA | 68 | 12308025 | 1 |
| WMT | 70 | 6197019 | 1 |
| JNJ | 81 | 5820696 | -1 |
| Average | 115.6 | 16971169 | 3.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 115.6 hedge funds with bullish positions and the average amount invested in these stocks was $16971 million. That figure was $17892 million in BABA’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 68 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BABA is 76.8. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and beat the market again by 1.6 percentage points. Unfortunately BABA wasn’t nearly as successful as these 30 stocks and hedge funds that were betting on BABA were disappointed as the stock returned -0.4% since the end of December (through 3/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the more diversified list of the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Alibaba Group Holding Limited (NYSE:BABA)
Follow Alibaba Group Holding Limited (NYSE:BABA)
Disclosure: None. This article was originally published at Insider Monkey.
