This Metric Says You Are Smart to Buy GameStop Corp. (GME)

GameStop Corp. (NYSE:GME) was in 26 hedge funds’ portfolio at the end of the first quarter of 2013. GME shareholders have witnessed an increase in enthusiasm from smart money of late. There were 24 hedge funds in our database with GME positions at the end of the previous quarter.

If you’d ask most traders, hedge funds are seen as unimportant, outdated financial vehicles of the past. While there are greater than 8000 funds with their doors open at the moment, we choose to focus on the elite of this club, about 450 funds. Most estimates calculate that this group has its hands on the lion’s share of the hedge fund industry’s total asset base, and by paying attention to their top investments, we have brought to light a number of investment strategies that have historically beaten the S&P 500 index. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as beneficial, bullish insider trading sentiment is a second way to parse down the world of equities. There are lots of stimuli for a corporate insider to cut shares of his or her company, but just one, very obvious reason why they would behave bullishly. Many empirical studies have demonstrated the market-beating potential of this strategy if you know what to do (learn more here).

Keeping this in mind, it’s important to take a glance at the key action encompassing GameStop Corp. (NYSE:GME).

How have hedgies been trading GameStop Corp. (NYSE:GME)?

At Q1’s end, a total of 26 of the hedge funds we track were long in this stock, a change of 8% from one quarter earlier. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings meaningfully.

Of the funds we track, Royce & Associates, managed by Chuck Royce, holds the biggest position in GameStop Corp. (NYSE:GME). Royce & Associates has a $137 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $111.8 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other hedgies that hold long positions include John Murphy’s Alydar Capital, Phill Gross and Robert Atchinson’s Adage Capital Management and John Murphy’s Alydar Capital.

Consequently, key money managers have jumped into GameStop Corp. (NYSE:GME) headfirst. MAK Capital One, managed by Michael Kaufman, assembled the most valuable position in GameStop Corp. (NYSE:GME). MAK Capital One had 24.9 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also made a $16 million investment in the stock during the quarter. The following funds were also among the new GME investors: Daniel S. Och’s OZ Management, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Scott Scher & Michael Prober’s Clovis Capital Management.

Insider trading activity in GameStop Corp. (NYSE:GME)

Bullish insider trading is particularly usable when the company we’re looking at has experienced transactions within the past 180 days. Over the last 180-day time frame, GameStop Corp. (NYSE:GME) has seen zero unique insiders purchasing, and 1 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to GameStop Corp. (NYSE:GME). These stocks are RadioShack Corporation (NYSE:RSH), hhgregg, Inc. (NYSE:HGG), CONN’S, Inc. (NASDAQ:CONN),  and Best Buy Co., Inc. (NYSE:BBY). This group of stocks are in the electronics stores industry and their market caps are similar to GME’s market cap.