How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tesla Inc. (NASDAQ:TSLA).
Is TSLA a good stock to buy now? Tesla Inc. (NASDAQ:TSLA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 60 hedge funds’ portfolios at the end of the third quarter of 2021. Our calculations also showed that TSLA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare TSLA to other stocks including Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and NVIDIA Corporation (NASDAQ:NVDA) to get a better sense of its popularity.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now let’s take a glance at the recent hedge fund action surrounding Tesla Inc. (NASDAQ:TSLA).
Ian Wace of Marshall Wace
Do Hedge Funds Think TSLA Is A Good Stock To Buy Now?
At the end of September, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 67 hedge funds held shares or bullish call options in TSLA a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Tesla Inc. (NASDAQ:TSLA) was held by Citadel Investment Group, which reported holding $17262.1 million worth of stock at the end of September. It was followed by ARK Investment Management with a $3064.9 million position. Other investors bullish on the company included PEAK6 Capital Management, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Symmetry Peak Management allocated the biggest weight to Tesla Inc. (NASDAQ:TSLA), around 61.73% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, dishing out 31.34 percent of its 13F equity portfolio to TSLA.
Since Tesla Inc. (NASDAQ:TSLA) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds that slashed their entire stakes heading into Q4. It’s worth mentioning that Chris Rokos’s Rokos Capital Management said goodbye to the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at about $75.4 million in call options. Morris Mark’s fund, Mark Asset Management, also said goodbye to its call options, about $24.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Tesla Inc. (NASDAQ:TSLA). We will take a look at Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), and Alibaba Group Holding Limited (NYSE:BABA). All of these stocks’ market caps match TSLA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRK-B | 106 | 19463815 | -10 |
| TSM | 67 | 9511459 | 3 |
| NVDA | 83 | 10050216 | -3 |
| JPM | 101 | 5635067 | -7 |
| V | 143 | 26169435 | -19 |
| JNJ | 88 | 6871782 | 0 |
| BABA | 115 | 10201096 | -31 |
| Average | 100.4 | 12557553 | -9.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 100.4 hedge funds with bullish positions and the average amount invested in these stocks was $12558 million. That figure was $10645 million in TSLA’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 67 bullish hedge fund positions. Compared to these stocks Tesla Inc. (NASDAQ:TSLA) is even less popular than TSM. Our overall hedge fund sentiment score for TSLA is 31.5. 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. Hedge funds clearly dropped the ball on TSLA as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. A small number of hedge funds were also right about betting on TSLA as the stock returned 47.6% since Q3 (through November 30th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
