Should I Avoid Mercadolibre Inc (MELI)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Mercadolibre Inc (NASDAQ:MELI).

Is Mercadolibre Inc (NASDAQ:MELI) worth your attention right now? The smart money was taking a bearish view. The number of bullish hedge fund bets decreased by 10 lately. Mercadolibre Inc (NASDAQ:MELI) was in 69 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 81. Our calculations also showed that MELI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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. Now let’s take a look at the recent hedge fund action surrounding Mercadolibre Inc (NASDAQ:MELI).

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

At Q1’s end, a total of 69 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MELI over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Lone Pine Capital was the largest shareholder of Mercadolibre Inc (NASDAQ:MELI), with a stake worth $1052.8 million reported as of the end of March. Trailing Lone Pine Capital was Alkeon Capital Management, which amassed a stake valued at $495.1 million. Citadel Investment Group, Whale Rock Capital Management, and Fisher Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prince Street Capital Management allocated the biggest weight to Mercadolibre Inc (NASDAQ:MELI), around 14.23% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, setting aside 13.21 percent of its 13F equity portfolio to MELI.

Seeing as Mercadolibre Inc (NASDAQ:MELI) has faced bearish sentiment from the smart money, it’s safe to say that there were a few hedgies who were dropping their full holdings last quarter. Interestingly, Rajiv Jain’s GQG Partners dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at about $1815.3 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund dropped about $335 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 10 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Mercadolibre Inc (NASDAQ:MELI) but similarly valued. These stocks are CME Group Inc (NASDAQ:CME), CSX Corporation (NASDAQ:CSX), Baidu, Inc. (NASDAQ:BIDU), Activision Blizzard, Inc. (NASDAQ:ATVI), ConocoPhillips (NYSE:COP), NetEase, Inc (NASDAQ:NTES), and Chubb Limited (NYSE:CB). This group of stocks’ market values match MELI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.4 hedge funds with bullish positions and the average amount invested in these stocks was $3223 million. That figure was $5223 million in MELI’s case. Baidu, Inc. (NASDAQ:BIDU) is the most popular stock in this table. On the other hand NetEase, Inc (NASDAQ:NTES) is the least popular one with only 32 bullish hedge fund positions. Mercadolibre Inc (NASDAQ:MELI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MELI is 53. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately MELI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MELI were disappointed as the stock returned -5.4% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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