Were Hedge Funds Right About Electronic Arts (EA)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Electronic Arts Inc. (NASDAQ:EA) in this article.

Is Electronic Arts Inc. (NASDAQ:EA) undervalued? Prominent investors were becoming less confident. The number of long hedge fund bets were trimmed by 6 lately. Electronic Arts Inc. (NASDAQ:EA) was in 67 hedge funds’ portfolios at the end of June. The all time high for this statistics is 79. Our calculations also showed that EA 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Gil Simon of SoMa Equity Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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 view the new hedge fund action encompassing Electronic Arts Inc. (NASDAQ:EA).

How are hedge funds trading Electronic Arts Inc. (NASDAQ:EA)?

At Q2’s end, a total of 67 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EA over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

The largest stake in Electronic Arts Inc. (NASDAQ:EA) was held by Renaissance Technologies, which reported holding $409 million worth of stock at the end of September. It was followed by AQR Capital Management with a $296 million position. Other investors bullish on the company included SoMa Equity Partners, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position SoMa Equity Partners allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 7.21% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, setting aside 5.46 percent of its 13F equity portfolio to EA.

Seeing as Electronic Arts Inc. (NASDAQ:EA) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there was a specific group of funds that decided to sell off their full holdings by the end of the second quarter. It’s worth mentioning that Karthik Sarma’s SRS Investment Management said goodbye to the largest position of all the hedgies watched by Insider Monkey, comprising about $160 million in stock, and Barry Dargan’s Intermede Investment Partners was right behind this move, as the fund dropped about $60 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 6 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Electronic Arts Inc. (NASDAQ:EA) but similarly valued. We will take a look at BCE Inc. (NYSE:BCE), General Mills, Inc. (NYSE:GIS), Walgreens Boots Alliance Inc (NASDAQ:WBA), Emerson Electric Co. (NYSE:EMR), eBay Inc (NASDAQ:EBAY), Centene Corporation (NYSE:CNC), and FedEx Corporation (NYSE:FDX). This group of stocks’ market caps are closest to EA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.3 hedge funds with bullish positions and the average amount invested in these stocks was $1622 million. That figure was $1989 million in EA’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 10 bullish hedge fund positions. Electronic Arts Inc. (NASDAQ:EA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EA is 71.2. 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 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately EA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EA were disappointed as the stock returned -0.1% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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