Was The Smart Money Right About Moody’s Corporation (MCO)?

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 Moody’s Corporation (NYSE:MCO).

Moody’s Corporation (NYSE:MCO) has experienced a decrease in hedge fund sentiment in recent months. Moody’s Corporation (NYSE:MCO) was in 44 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 61. Our calculations also showed that MCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At the moment there are several indicators market participants have at their disposal to appraise publicly traded companies. A pair of the most innovative indicators are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite fund managers can beat the S&P 500 by a solid margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Chris Hohn of TCI Fund Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s review the key hedge fund action regarding Moody’s Corporation (NYSE:MCO).

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

At the end of June, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MCO over the last 24 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Berkshire Hathaway held the most valuable stake in Moody’s Corporation (NYSE:MCO), which was worth $8939.6 million at the end of the second quarter. On the second spot was TCI Fund Management which amassed $2378.2 million worth of shares. Akre Capital Management, Valley Forge Capital, and Windacre Partnership 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 Rings Capital Management allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 38.53% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, setting aside 16.26 percent of its 13F equity portfolio to MCO.

Judging by the fact that Moody’s Corporation (NYSE:MCO) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who were dropping their positions entirely last quarter. At the top of the heap, Andreas Halvorsen’s Viking Global dropped the biggest position of all the hedgies monitored by Insider Monkey, comprising about $512.4 million in stock, and Michael Hintze’s CQS Cayman LP was right behind this move, as the fund cut about $6.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 11 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Moody’s Corporation (NYSE:MCO). We will take a look at Banco Santander, S.A. (NYSE:SAN), VMware, Inc. (NYSE:VMW), Intercontinental Exchange Inc (NYSE:ICE), Norfolk Southern Corp. (NYSE:NSC), Bank of Montreal (NYSE:BMO), Edwards Lifesciences Corporation (NYSE:EW), and Atlassian Corporation Plc (NASDAQ:TEAM). This group of stocks’ market valuations match MCO’s market valuation.

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As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1738 million. That figure was $16046 million in MCO’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 12 bullish hedge fund positions. Moody’s Corporation (NYSE:MCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCO is 46.4. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately MCO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MCO were disappointed as the stock returned 7% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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