Is MSTR A Good Stock To Buy Now?

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 aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to MicroStrategy Incorporated (NASDAQ:MSTR) changed recently.

Is MSTR a good stock to buy now? MicroStrategy Incorporated (NASDAQ:MSTR) shareholders have witnessed a decrease in hedge fund interest recently. MicroStrategy Incorporated (NASDAQ:MSTR) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. There were 26 hedge funds in our database with MSTR holdings at the end of June. Our calculations also showed that MSTR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind let’s take a gander at the new hedge fund action surrounding MicroStrategy Incorporated (NASDAQ:MSTR).

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

At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in MSTR over the last 21 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the number one position in MicroStrategy Incorporated (NASDAQ:MSTR), worth close to $21.4 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Clearline Capital, led by Marc Majzner, holding a $17.2 million position; 4.5% of its 13F portfolio is allocated to the stock. Other peers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Noam Gottesman’s GLG Partners and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Clearline Capital allocated the biggest weight to MicroStrategy Incorporated (NASDAQ:MSTR), around 4.52% of its 13F portfolio. Symmetry Peak Management is also relatively very bullish on the stock, setting aside 1.35 percent of its 13F equity portfolio to MSTR.

Due to the fact that MicroStrategy Incorporated (NASDAQ:MSTR) has faced declining sentiment from hedge fund managers, logic holds that there exists a select few hedgies who sold off their entire stakes in the third quarter. It’s worth mentioning that Ken Fisher’s Fisher Asset Management cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $3.3 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $2.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 6 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MicroStrategy Incorporated (NASDAQ:MSTR) but similarly valued. These stocks are La-Z-Boy Incorporated (NYSE:LZB), Onto Innovation Inc. (NYSE:ONTO), Health Catalyst, Inc (NASDAQ:HCAT), Domtar Corporation (NYSE:UFS), American Assets Trust, Inc (NYSE:AAT), AeroVironment, Inc. (NASDAQ:AVAV), and Cactus, Inc. (NYSE:WHD). This group of stocks’ market caps are closest to MSTR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $87 million in MSTR’s case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand Health Catalyst, Inc (NASDAQ:HCAT) is the least popular one with only 14 bullish hedge fund positions. MicroStrategy Incorporated (NASDAQ:MSTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MSTR is 50.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on MSTR as the stock returned 85.7% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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