Is Mercadolibre Inc (MELI) A Good Stock To Buy?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Mercadolibre Inc (NASDAQ:MELI).

Mercadolibre shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the third quarter of 2015. 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 IPG Photonics Corporation (NASDAQ:IPGP), Casey’s General Stores, Inc. (NASDAQ:CASY), and Pitney Bowes Inc. (NYSE:PBI) to gather more data points.

At the moment there are a large number of metrics shareholders have at their disposal to evaluate stocks. A couple of the less known metrics are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best fund managers can outclass their index-focused peers by a very impressive margin (see the details here).

With all of this in mind, we’re going to view the new action surrounding Mercadolibre Inc (NASDAQ:MELI).

What does the smart money think about Mercadolibre Inc (NASDAQ:MELI)?

Heading into Q4, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, William B. Gray’s Orbis Investment Management has the number one position in Mercadolibre Inc (NASDAQ:MELI), worth close to $76.6 million, accounting for 0.7% of its total 13F portfolio. On Orbis Investment Management’s heels is Generation Investment Management, managed by David Blood and Al Gore, which holds a $72.2 million position; the fund has 1% of its 13F portfolio invested in the stock. The remaining members of the smart money with similar optimism comprise Dmitry Balyasny’s Balyasny Asset Management, Jim Simons’ Renaissance Technologies and D. E. Shaw’s D E Shaw.

Judging by the fact that Mercadolibre Inc (NASDAQ:MELI) has experienced a declination in interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers who sold off their full holdings in the third quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $14.5 million in stock. Richard Driehaus’s fund, Driehaus Capital, also said goodbye to its stock, about $12 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Mercadolibre Inc (NASDAQ:MELI). These stocks are IPG Photonics Corporation (NASDAQ:IPGP), Casey’s General Stores, Inc. (NASDAQ:CASY), Pitney Bowes Inc. (NYSE:PBI), and Intercept Pharmaceuticals Inc (NASDAQ:ICPT). This group of stocks’ market caps are similar to MELI’s market cap.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $322 million, versus $286 million in MELI’s case. IPG Photonics Corporation (NASDAQ:IPGP) is the most popular stock in this table. On the other hand Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Mercadolibre Inc (NASDAQ:MELI) is even less popular than ICPT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is required.