In this article we are going to use hedge fund sentiment as a tool and determine whether Zynga Inc (NASDAQ:ZNGA) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Zynga (ZNGA) stock a buy or sell? Investors who are in the know were becoming hopeful. The number of long hedge fund bets inched up by 4 in recent months. Zynga Inc (NASDAQ:ZNGA) was in 52 hedge funds’ portfolios at the end of the fourth quarter of 2020. 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 Q4 rankings). There were 48 hedge funds in our database with ZNGA positions at the end of the third 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 124 percentage points since March 2017 (see the details here).
Harold Levy of Iridian Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 (or at the end of this article). With all of this in mind we’re going to take a gander at the recent hedge fund action surrounding Zynga Inc (NASDAQ:ZNGA).
Do Hedge Funds Think ZNGA Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the third quarter of 2020. By comparison, 48 hedge funds held shares or bullish call options in ZNGA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Eric Bannasch’s Cadian Capital has the largest position in Zynga Inc (NASDAQ:ZNGA), worth close to $224 million, accounting for 5.8% of its total 13F portfolio. The second most bullish fund manager is David Cohen and Harold Levy of Iridian Asset Management, with a $184.7 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions contain Israel Englander’s Millennium Management, Robert Boucai’s Newbrook Capital Advisors and David Zorub’s Parsifal Capital Management. In terms of the portfolio weights assigned to each position Tiger Legatus Capital allocated the biggest weight to Zynga Inc (NASDAQ:ZNGA), around 22.31% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, earmarking 11.3 percent of its 13F equity portfolio to ZNGA.
There weren’t any hedge funds initiating brand new positions in the stock during the fourth quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zynga Inc (NASDAQ:ZNGA) but similarly valued. These stocks are News Corp (NASDAQ:NWSA), Teva Pharmaceutical Industries Limited (NYSE:TEVA), Cna Financial Corporation (NYSE:CNA), News Corp (NASDAQ:NWS), Lennox International Inc. (NYSE:LII), Repligen Corporation (NASDAQ:RGEN), and First Solar, Inc. (NASDAQ:FSLR). This group of stocks’ market caps match ZNGA’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NWSA,32,703034,1 TEVA,26,916076,-7 CNA,16,60793,-1 NWS,11,65562,-3 LII,27,353035,-7 RGEN,37,1330745,2 FSLR,34,406430,-6 Average,26.1,547954,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $548 million. That figure was $1003 million in ZNGA’s case. Repligen Corporation (NASDAQ:RGEN) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 11 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 85.4. 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. 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 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Unfortunately ZNGA wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZNGA were disappointed as the stock returned 1.1% since the end of the fourth quarter (through 3/19) 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.
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Disclosure: None. This article was originally published at Insider Monkey.