Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Keeping this in mind let’s take a look at whether Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Take-Two Interactive Software, Inc. (NASDAQ:TTWO) going to take off soon? The smart money is taking a bearish view. The number of bullish hedge fund bets fell by 1 in recent months. Our calculations also showed that TTWO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). TTWO was in 59 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 60 hedge funds in our database with TTWO holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Ricky Sandler of Eminence Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s review the latest hedge fund action surrounding Take-Two Interactive Software, Inc. (NASDAQ:TTWO).
What does smart money think about Take-Two Interactive Software, Inc. (NASDAQ:TTWO)?
At the end of the fourth quarter, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the third quarter of 2019. By comparison, 58 hedge funds held shares or bullish call options in TTWO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Eminence Capital held the most valuable stake in Take-Two Interactive Software, Inc. (NASDAQ:TTWO), which was worth $153 million at the end of the third quarter. On the second spot was Melvin Capital Management which amassed $134.7 million worth of shares. GLG Partners, Renaissance Technologies, and Alyeska Investment Group 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 Hidden Lake Asset Management allocated the biggest weight to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), around 13.31% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, dishing out 9.13 percent of its 13F equity portfolio to TTWO.
Judging by the fact that Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has witnessed falling interest from the smart money, it’s easy to see that there exists a select few hedge funds who sold off their entire stakes by the end of the third quarter. Intriguingly, John Smith Clark’s Southpoint Capital Advisors sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $125.3 million in stock, and Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management was right behind this move, as the fund dumped about $98.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Take-Two Interactive Software, Inc. (NASDAQ:TTWO). We will take a look at Leidos Holdings Inc (NYSE:LDOS), W.P. Carey Inc. (NYSE:WPC), Gartner Inc (NYSE:IT), and Liberty Global Plc (NASDAQ:LBTYK). This group of stocks’ market values are closest to TTWO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LDOS | 27 | 467199 | 2 |
| WPC | 21 | 88287 | 6 |
| IT | 26 | 727134 | 4 |
| LBTYK | 44 | 3362668 | 0 |
| Average | 29.5 | 1161322 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1161 million. That figure was $1106 million in TTWO’s case. Liberty Global Plc (NASDAQ:LBTYK) is the most popular stock in this table. On the other hand W.P. Carey Inc. (NYSE:WPC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on TTWO as the stock returned -7% so far in Q1 (through March 9th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
