Is It Time to Buy Back Into Activision Blizzard, Inc. (ATVI)?

There are several ways to beat the market, and investing in small-cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund managers make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small-cap picks. In this article, we use hedge fund filing data to analyze Activision Blizzard, Inc. (NASDAQ:ATVI).

Is Activision Blizzard, Inc. (NASDAQ:ATVI) a first-rate stock to buy now? Hedge funds are becoming less hopeful. The number of bullish hedge fund bets fell by 4 lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Aon PLC (NYSE:AON), Johnson Controls, Inc. (NYSE:JCI), and SYSCO Corporation (NYSE:SYY) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How have hedgies been trading Activision Blizzard, Inc. (NASDAQ:ATVI)?

At Q3’s end, a total of 64 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 6% drop from the previous quarter. That decline in sentiment coincides with a steep drop in the value of the stock in Q4, so it appears that some hedge funds timed their exits well. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Stephen Mandel’s Lone Pine Capital has the biggest position in Activision Blizzard, Inc. (NASDAQ:ATVI), worth close to $765.9 million, corresponding to 3.4% of its total 13F portfolio. The second largest stake is held by Coatue Management, managed by Philippe Laffont, which holds a $513.9 million position; the fund has 6.3% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions comprise John Armitage’s Egerton Capital Limited, Daniel S. Och’s OZ Management, and Principal Global Investors’s Columbus Circle Investors.

Judging by the fact that Activision Blizzard, Inc. (NASDAQ:ATVI) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of funds who sold off their full holdings last quarter. Interestingly, Josh Resnick’s Jericho Capital Asset Management cut the largest investment of all the hedgies tracked by Insider Monkey, worth close to $222.8 million in stock, and Dan Loeb’s Third Point was right behind this move, as the fund said goodbye to about $118.9 million worth of shares. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Activision Blizzard, Inc. (NASDAQ:ATVI) but similarly valued. We will take a look at Aon PLC (NYSE:AON), Johnson Controls, Inc. (NYSE:JCI), SYSCO Corporation (NYSE:SYY), and Kellogg Company (NYSE:K). This group of stocks’ market caps are closest to ATVI’s market cap.

As you can see these stocks had an average of 39.5 hedge funds with bullish positions and the average amount invested in these stocks was $2.57 billion. That figure was $4.24 billion in ATVI’s case. Johnson Controls, Inc. (NYSE:JCI) is the most popular stock in this table. On the other hand Aon PLC (NYSE:AON) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Activision Blizzard, Inc. (NASDAQ:ATVI) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and have more money invested in it, it may be a good idea to analyze it in detail and potentially include it in your portfolio on the current dip, as even given the decline in hedge fund sentiment in Q3, we think the stock’s correction makes for an attractive entry point and suspect other hedge funds may also buy back in on the weakness.

Disclosure: None