This Metric Says You Are Smart to Buy Zynga Inc (ZNGA)

Zynga Inc (NASDAQ:ZNGA) was in 27 hedge funds’ portfolio at the end of the first quarter of 2013. ZNGA investors should be aware of an increase in support from the world’s most elite money managers recently. There were 20 hedge funds in our database with ZNGA positions at the end of the previous quarter.

According to most investors, hedge funds are seen as worthless, outdated financial tools of the past. While there are greater than 8000 funds with their doors open at present, we at Insider Monkey choose to focus on the aristocrats of this group, close to 450 funds. It is estimated that this group controls the lion’s share of the smart money’s total asset base, and by tracking their highest performing stock picks, we have deciphered a few investment strategies that have historically outstripped the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year 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 topped the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Equally as key, positive insider trading sentiment is a second way to parse down the marketplace. Obviously, there are a variety of incentives for a corporate insider to downsize shares of his or her company, but only one, very obvious reason why they would behave bullishly. Plenty of academic studies have demonstrated the impressive potential of this strategy if shareholders understand what to do (learn more here).

Keeping this in mind, let’s take a peek at the recent action regarding Zynga Inc (NASDAQ:ZNGA).

What have hedge funds been doing with Zynga Inc (NASDAQ:ZNGA)?

In preparation for this quarter, a total of 27 of the hedge funds we track were long in this stock, a change of 35% from the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially.

As aggregate interest increased, specific money managers were breaking ground themselves. JANA Partners, managed by Barry Rosenstein, created the largest position in Zynga Inc (NASDAQ:ZNGA). JANA Partners had 85.6 million invested in the company at the end of the quarter. Randall Smith’s Alden Global Capital also initiated a $15.1 million position during the quarter. The other funds with brand new ZNGA positions are Gregory A. Weaver’s Invicta Capital Management, Spencer M. Waxman’s Shannon River Fund Management, and Paul Tanico’s Castlerock Asset Management.

How have insiders been trading Zynga Inc (NASDAQ:ZNGA)?

Insider buying is best served when the primary stock in question has experienced transactions within the past six months. Over the latest six-month time period, Zynga Inc (NASDAQ:ZNGA) has experienced zero unique insiders purchasing, and 9 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Zynga Inc (NASDAQ:ZNGA). These stocks are Sohu.com Inc (NASDAQ:SOHU), ValueClick Inc (NASDAQ:VCLK), AOL, Inc. (NYSE:AOL), Youku Tudou Inc (ADR) (NYSE:YOKU), and HomeAway, Inc. (NASDAQ:AWAY). This group of stocks belong to the internet information providers industry and their market caps resemble ZNGA’s market cap.

With the returns exhibited by Insider Monkey’s research, retail investors should always watch hedge fund and insider trading sentiment, and Zynga Inc (NASDAQ:ZNGA) applies perfectly to this mantra.

Click here to learn why you should track hedge funds