Was The Smart Money Right About Crowding Into Zebra Technologies Corporation (ZBRA)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Zebra Technologies Corporation (NASDAQ:ZBRA).

Zebra Technologies Corporation (NASDAQ:ZBRA) was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ZBRA investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. There were 28 hedge funds in our database with ZBRA holdings at the end of March. Our calculations also showed that ZBRA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 58 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.

Bruce Kovner of Caxton Associates LP

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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s take a gander at the recent hedge fund action regarding Zebra Technologies Corporation (NASDAQ:ZBRA).

How have hedgies been trading Zebra Technologies Corporation (NASDAQ:ZBRA)?

At the end of the second quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in ZBRA a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Cedar Rock Capital, managed by Andy Brown, holds the most valuable position in Zebra Technologies Corporation (NASDAQ:ZBRA). Cedar Rock Capital has a $334.6 million position in the stock, comprising 8.1% of its 13F portfolio. On Cedar Rock Capital’s heels is Ariel Investments, led by John W. Rogers, holding a $81.8 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Edward Goodnow’s Goodnow Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Goodnow Investment Group allocated the biggest weight to Zebra Technologies Corporation (NASDAQ:ZBRA), around 9.43% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, earmarking 8.57 percent of its 13F equity portfolio to ZBRA.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, initiated the biggest position in Zebra Technologies Corporation (NASDAQ:ZBRA). Alyeska Investment Group had $36.2 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates LP also initiated a $10.6 million position during the quarter. The following funds were also among the new ZBRA investors: Alexander Mitchell’s Scopus Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zebra Technologies Corporation (NASDAQ:ZBRA) but similarly valued. These stocks are Teva Pharmaceutical Industries Limited (NYSE:TEVA), Nomura Holdings, Inc. (NYSE:NMR), Evergy, Inc. (NYSE:EVRG), Bio-Rad Laboratories, Inc. (NYSE:BIO), Vipshop Holdings Limited (NYSE:VIPS), Altice USA, Inc. (NYSE:ATUS), and M&T Bank Corporation (NYSE:MTB). This group of stocks’ market valuations are similar to ZBRA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1038 million. That figure was $789 million in ZBRA’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Zebra Technologies Corporation (NASDAQ:ZBRA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZBRA is 71.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on ZBRA as the stock returned 10.8% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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