Should I Avoid ironSource Ltd. (IS)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about ironSource Ltd. (NYSE:IS) in this article.

ironSource Ltd. (NYSE:IS) has seen a decrease in hedge fund interest lately. ironSource Ltd. (NYSE:IS) was in 32 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 52. Our calculations also showed that IS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Seth Klarman of Baupost Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Keeping this in mind we’re going to analyze the recent hedge fund action regarding ironSource Ltd. (NYSE:IS).

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

At the end of the second quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in IS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in ironSource Ltd. (NYSE:IS) was held by Tiger Global Management LLC, which reported holding $215.3 million worth of stock at the end of June. It was followed by Indaba Capital Management with a $88.4 million position. Other investors bullish on the company included Baupost Group, Maverick Capital, and Glenview Capital. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to ironSource Ltd. (NYSE:IS), around 9.55% of its 13F portfolio. Tao Capital is also relatively very bullish on the stock, earmarking 8.93 percent of its 13F equity portfolio to IS.

Seeing as ironSource Ltd. (NYSE:IS) has faced bearish sentiment from the smart money, we can see that there exists a select few hedge funds that slashed their entire stakes heading into Q3. It’s worth mentioning that Benjamin Pass’s TOMS Capital said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, totaling close to $15.3 million in stock. Richard Gerson and Navroz D. Udwadia’s fund, Falcon Edge Capital, also dumped its stock, about $14.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 20 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ironSource Ltd. (NYSE:IS) but similarly valued. We will take a look at American Financial Group, Inc. (NYSE:AFG), Brookfield Renewable Partners L.P. (NYSE:BEP), Lamar Advertising Company  (REIT) (NASDAQ:LAMR), Lear Corporation (NYSE:LEA), China Southern Airlines Co Ltd (NYSE:ZNH), Vereit Inc (NYSE:VER), and Bausch Health Companies Inc. (NYSE:BHC). This group of stocks’ market valuations are closest to IS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $984 million. That figure was $772 million in IS’s case. Bausch Health Companies Inc. (NYSE:BHC) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 2 bullish hedge fund positions. ironSource Ltd. (NYSE:IS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IS is 38.3. 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 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on IS as the stock returned 11.8% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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