Is Hello Group Inc. (MOMO) Going to Burn These Hedge Funds?

In this article we will analyze whether Hello Group Inc. (NASDAQ:MOMO) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Hello Group Inc. (NASDAQ:MOMO) undervalued? Investors who are in the know were becoming less hopeful. The number of bullish hedge fund bets retreated by 1 recently. Hello Group Inc. (NASDAQ:MOMO) was in 24 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 45. Our calculations also showed that MOMO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 25 hedge funds in our database with MOMO holdings at the end of March.

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bart Baum of Ionic Capital Management

At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Keeping this in mind let’s review the recent hedge fund action regarding Hello Group Inc. (NASDAQ:MOMO).

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

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in MOMO a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Hello Group Inc. (NASDAQ:MOMO), with a stake worth $180.7 million reported as of the end of June. Trailing Renaissance Technologies was Tiger Pacific Capital, which amassed a stake valued at $30.8 million. Yiheng Capital, Islet Management, and York 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 Tiger Pacific Capital allocated the biggest weight to Hello Group Inc. (NASDAQ:MOMO), around 5.09% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, setting aside 2.49 percent of its 13F equity portfolio to MOMO.

Judging by the fact that Hello Group Inc. (NASDAQ:MOMO) has witnessed falling interest from the smart money, logic holds that there were a few fund managers that slashed their full holdings in the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest position of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $10.7 million in stock, and Andrew Weiss’s Weiss Asset Management was right behind this move, as the fund dropped about $8.9 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Hello Group Inc. (NASDAQ:MOMO) but similarly valued. These stocks are Evertec Inc (NYSE:EVTC), SelectQuote, Inc. (NYSE:SLQT), Corporate Office Properties Trust (NYSE:OFC), Worthington Industries, Inc. (NYSE:WOR), FirstCash, Inc. (NASDAQ:FCFS), Cathay General Bancorp (NASDAQ:CATY), and GATX Corporation (NYSE:GATX). This group of stocks’ market valuations are similar to MOMO’s market valuation.

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As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $306 million in MOMO’s case. Evertec Inc (NYSE:EVTC) is the most popular stock in this table. On the other hand Corporate Office Properties Trust (NYSE:OFC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Hello Group Inc. (NASDAQ:MOMO) is more popular among hedge funds. Our overall hedge fund sentiment score for MOMO is 70. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately MOMO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MOMO were disappointed as the stock returned -13.1% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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