Is Electronic Arts (EA) Stock A Buy or Sell?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Electronic Arts Inc. (NASDAQ:EA) changed recently.

Is EA stock a buy or sell? Electronic Arts Inc. (NASDAQ:EA) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Electronic Arts Inc. (NASDAQ:EA) was in 50 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 79. Our calculations also showed that EA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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).Now we’re going to go over the recent hedge fund action surrounding Electronic Arts Inc. (NASDAQ:EA).

Do Hedge Funds Think EA Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 68 hedge funds with a bullish position in EA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Electronic Arts Inc. (NASDAQ:EA) was held by AQR Capital Management, which reported holding $168.1 million worth of stock at the end of December. It was followed by SoMa Equity Partners with a $129.2 million position. Other investors bullish on the company included GLG Partners, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position SoMa Equity Partners allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 3.13% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, dishing out 3.09 percent of its 13F equity portfolio to EA.

Seeing as Electronic Arts Inc. (NASDAQ:EA) has faced bearish sentiment from hedge fund managers, it’s safe to say that there were a few fund managers that elected to cut their positions entirely heading into Q1. Interestingly, Panayotis Takis Sparaggis’s Alkeon Capital Management dumped the biggest investment of all the hedgies followed by Insider Monkey, worth about $65.5 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $27.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 12 funds heading into Q1.

Let’s check out hedge fund activity in other stocks similar to Electronic Arts Inc. (NASDAQ:EA). These stocks are National Grid plc (NYSE:NGG), Unity Software Inc. (NYSE:U), DocuSign, Inc. (NASDAQ:DOCU), Moderna, Inc. (NASDAQ:MRNA), American Electric Power Company, Inc. (NASDAQ:AEP), Veeva Systems Inc (NYSE:VEEV), and Exelon Corporation (NASDAQ:EXC). This group of stocks’ market valuations resemble EA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $2845 million. That figure was $1051 million in EA’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 5 bullish hedge fund positions. Electronic Arts Inc. (NASDAQ:EA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EA is 48.3. 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 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately EA wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on EA were disappointed as the stock returned -10.5% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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