LinkedIn Corp (NYSE:LNKD) has jumped to a high of $211.00 per share in pre-market trading, up by 1.65% from its closing price of $207.59 the previous day, after Mizuho initiated coverage on the professional social network’s stock with a ‘Buy’ rating and a price target of $240.00 per share after markets closed yesterday. The bullish price target represents an over 15% upside from the stock’s closing price yesterday. Mizuho is now calling LinkedIn its top mid-cap stock pick and says that the social network is not just a social network anymore, but also a major media company for the professional audience. LinkedIn will report its second quarter 2015 financial results on July 30. Year-to-date, the stock has slid by 10.78% but over the last 12 months, the stock has climbed 19.5%.
The very bullish opinion on LinkedIn Corp (NYSE:LNKD) is contrary to an overall bearish sentiment during the first quarter from hedge funds Insider Monkey tracks. By March 31, a total of 60 of the hedge funds tracked by Insider Monkey were bullish in this stock, which may lead people to believe there is positive sentiment on the stock as this is a 25% increase from the previous quarter. However, those who were long in the stock reduced their holdings by 19.34% despite many more investors entering the stock, a significant drop which signifies the new entrants in the stock were cautious, while the larger investors sold of some of their stakes. The data becomes even more stark when considering that shares of LinkedIn also rose by 8.77% during the first quarter. It appears the world’s best money managers were right to pull capital out of the stock, as it lost 17.3% during the second quarter.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 135% over the last 34 months, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Insider Monkey also tracks insider transactions, another gauge to look at to see whether a firm’s shares are good to buy at the moment. LinkedIn has not had any insiders buy shares so far this year, but it has had regular sales. The two most recent insider sales of shares were by David Sze, Director, who sold 1,500 shares in two transactions on July 1, and Michael Gamson, Senior Vice President, who sold 2,500 shares in two transactions on June 16.
With this in mind, we’re going to delve deeper into how LinkedIn Corp was traded by hedge funds in the first quarter.
How have hedgies been trading LinkedIn Corp (NYSE:LNKD)?
When looking at the hedgies followed by Insider Monkey, Philippe Laffont’s Coatue Management had the largest position in LinkedIn Corp (NYSE:LNKD), worth close to $555.4 million, holding 2.22 million shares, the position accounting for 5.3% of its total 13F portfolio. Coming in second is D.E. Shaw & Co., L.P., managed by David E. Shaw, which held a $307 million position of 1.23 million shares; the fund had 0.5% of its 13F portfolio invested in the stock. Some other hedgies with similar optimism comprise Alex Snow’s Lansdowne Partners, John Griffin’s Blue Ridge Capital, and Christopher Lord’s Criterion Capital.
Conatus Capital Management, led by David Stemerman, assembled the biggest new position in LinkedIn Corp (NYSE:LNKD), as it had $29.3 million invested in the company at the end of the quarter, buying 117,143 shares. Backing up the previous data, the largest new position was a relatively small one. Among the bears, however, the biggest was Matrix Capital Management helmed by David Goel and Paul Ferri, which sold 925,000 shares worth $212.48 million by the end of March. Another bearish fund was Cadian Capital managed by Eric Bannasch, which sold its entire $148.03 million stake comprised of 644,400 shares.
Because of the bearish sentiment LinkedIn Corp (NYSE:LNKD) experienced by the start of the second quarter, we don’t recommend a long position in the professional social network and media company at the moment, at least not until we see whether the smart money found a good entry point in the second quarter from its decline.
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