Were Hedge Funds Right About Zynga Inc (ZNGA)?

In this article we will analyze whether Zynga Inc (NASDAQ:ZNGA) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Zynga Inc (NASDAQ:ZNGA) an exceptional investment right now? Hedge funds were becoming more confident. The number of bullish hedge fund bets inched up by 2 in recent months. Zynga Inc (NASDAQ:ZNGA) was in 49 hedge funds’ portfolios at the end of June. The all time high for this statistic is 59. Our calculations also showed that ZNGA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 47 hedge funds in our database with ZNGA positions at the end of the first quarter.

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 79 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.

Keith Meister of Corvex Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining 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. Now let’s take a gander at the key hedge fund action regarding Zynga Inc (NASDAQ:ZNGA).

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

At the end of June, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZNGA over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Zynga Inc (NASDAQ:ZNGA) was held by 0, which reported holding $215.8 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $176.5 million position. Other investors bullish on the company included Iridian Asset Management, Renaissance Technologies, and Junto Capital Management. In terms of the portfolio weights assigned to each position Shelter Haven Capital Management allocated the biggest weight to Zynga Inc (NASDAQ:ZNGA), around 9.29% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, setting aside 6.65 percent of its 13F equity portfolio to ZNGA.

As industrywide interest jumped, some big names have jumped into Zynga Inc (NASDAQ:ZNGA) headfirst. Junto Capital Management, managed by James Parsons, assembled the most valuable position in Zynga Inc (NASDAQ:ZNGA). Junto Capital Management had $75.4 million invested in the company at the end of the quarter. Joe Milano’s Greenhouse Funds also made a $19.2 million investment in the stock during the quarter. The other funds with brand new ZNGA positions are Robert Smith’s Vista Equity Partners, Keith Meister’s Corvex Capital, and Louis Bacon’s Moore Global Investments.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Zynga Inc (NASDAQ:ZNGA) but similarly valued. These stocks are A. O. Smith Corporation (NYSE:AOS), AMERCO (NASDAQ:UHAL), Cable One Inc (NYSE:CABO), Westlake Chemical Corporation (NYSE:WLK), Booz Allen Hamilton Holding Corporation (NYSE:BAH), Bruker Corporation (NASDAQ:BRKR), and RPM International Inc. (NYSE:RPM). This group of stocks’ market caps resemble ZNGA’s market cap.

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As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $449 million. That figure was $1270 million in ZNGA’s case. Westlake Chemical Corporation (NYSE:WLK) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Zynga Inc (NASDAQ:ZNGA) is more popular among hedge funds. Our overall hedge fund sentiment score for ZNGA is 81.9. 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 through November 5th and still beat the market by 3.1 percentage points. Unfortunately ZNGA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ZNGA were disappointed as the stock returned -35.1% since the end of the second quarter (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 most of these stocks already outperformed the market since 2019.

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