How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Visa Inc (NYSE:V) and determine whether hedge funds had an edge regarding this stock.
Is Visa Inc (NYSE:V) the right pick for your portfolio? Prominent investors were becoming less confident. The number of bullish hedge fund positions were trimmed by 19 in recent months. Visa Inc (NYSE:V) was in 143 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 166. Our calculations also showed that V ranked #8 among the 30 most popular stocks among hedge funds (click for Q3 rankings).
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 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. With all of this in mind let’s take a look at the new hedge fund action regarding Visa Inc (NYSE:V).
Chris Hohn of TCI Fund Management
Do Hedge Funds Think V Is A Good Stock To Buy Now?
At the end of September, a total of 143 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. By comparison, 160 hedge funds held shares or bullish call options in V a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, TCI Fund Management was the largest shareholder of Visa Inc (NYSE:V), with a stake worth $4441.5 million reported as of the end of September. Trailing TCI Fund Management was Fisher Asset Management, which amassed a stake valued at $4084.7 million. Berkshire Hathaway, GQG Partners, and Fundsmith LLP 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 Truvvo Partners allocated the biggest weight to Visa Inc (NYSE:V), around 30.85% of its 13F portfolio. Hengistbury Investment Partners is also relatively very bullish on the stock, setting aside 27.12 percent of its 13F equity portfolio to V.
Judging by the fact that Visa Inc (NYSE:V) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedge funds that elected to cut their full holdings heading into Q4. Intriguingly, Gabriel Plotkin’s Melvin Capital Management dropped the largest position of the 750 funds followed by Insider Monkey, comprising close to $701.5 million in stock. Matthew Stadelman’s fund, Diamond Hill Capital, also cut its stock, about $296.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 19 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Visa Inc (NYSE:V). We will take a look at Johnson & Johnson (NYSE:JNJ), Alibaba Group Holding Limited (NYSE:BABA), Walmart Inc. (NYSE:WMT), UnitedHealth Group Inc. (NYSE:UNH), Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), and Mastercard Incorporated (NYSE:MA). All of these stocks’ market caps are similar to V’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JNJ | 88 | 6871782 | 0 |
| BABA | 115 | 10201096 | -31 |
| WMT | 71 | 7932562 | 0 |
| UNH | 95 | 11705313 | -10 |
| BAC | 72 | 46487618 | -15 |
| HD | 58 | 4380170 | -6 |
| MA | 146 | 17659997 | -10 |
| Average | 92.1 | 15034077 | -10.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 92.1 hedge funds with bullish positions and the average amount invested in these stocks was $15034 million. That figure was $26169 million in V’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 58 bullish hedge fund positions. Visa Inc (NYSE:V) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for V is 92.3. 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 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 and still beat the market by 3.6 percentage points. Hedge funds were somewhat right about betting on V as the stock returned 1.7% since the end of Q3 (through 1/31) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as hedge funds’ consensus picks usually outperform the market.
Follow Visa Inc. (NYSE:V)
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Disclosure: None. This article was originally published at Insider Monkey.
