Was The Smart Money Right About Mercadolibre Inc (MELI)?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Mercadolibre Inc (NASDAQ:MELI), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is Mercadolibre Inc (NASDAQ:MELI) a buy right now? The smart money was becoming less hopeful. The number of long hedge fund bets were trimmed by 2 recently. Mercadolibre Inc (NASDAQ:MELI) was in 79 hedge funds’ portfolios at the end of December. 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 Q4 rankings). There were 81 hedge funds in our database with MELI positions at the end of the third quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here).

Andreas Halvorsen of Viking Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Now let’s take a look at the recent hedge fund action regarding Mercadolibre Inc (NASDAQ:MELI).

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

At fourth quarter’s end, a total of 79 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MELI over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, GQG Partners held the most valuable stake in Mercadolibre Inc (NASDAQ:MELI), which was worth $1815.3 million at the end of the fourth quarter. On the second spot was Lone Pine Capital which amassed $1000.3 million worth of shares. Viking Global, Alkeon Capital Management, and Whale Rock Capital 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 Anabranch Capital allocated the biggest weight to Mercadolibre Inc (NASDAQ:MELI), around 17.66% of its 13F portfolio. Kora Management is also relatively very bullish on the stock, designating 15.05 percent of its 13F equity portfolio to MELI.

Because Mercadolibre Inc (NASDAQ:MELI) has faced a decline in interest from hedge fund managers, logic holds that there were a few funds who were dropping their entire stakes last quarter. Interestingly, Ken Griffin’s Citadel Investment Group dropped the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $73.6 million in stock, and David Ma’s Composite Capital was right behind this move, as the fund dumped about $46.3 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Mercadolibre Inc (NASDAQ:MELI) but similarly valued. We will take a look at The TJX Companies, Inc. (NYSE:TJX), Anthem Inc (NYSE:ANTM), Snowflake Inc (NYSE:SNOW), S&P Global Inc. (NYSE:SPGI), Applied Materials, Inc. (NASDAQ:AMAT), Zoetis Inc (NYSE:ZTS), and Canadian National Railway Company (NYSE:CNI). This group of stocks’ market values are closest to MELI’s market value.

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As you can see these stocks had an average of 60 hedge funds with bullish positions and the average amount invested in these stocks was $3889 million. That figure was $8767 million in MELI’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Mercadolibre Inc (NASDAQ:MELI) is more popular among hedge funds. Our overall hedge fund sentiment score for MELI is 82.3. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Unfortunately MELI wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on MELI were disappointed as the stock returned -6.2% since the end of the fourth quarter (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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