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 Pinduoduo Inc. (NASDAQ:PDD).
Is PDD stock a buy or sell? Pinduoduo Inc. (NASDAQ:PDD) was in 54 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PDD shareholders have witnessed an increase in support from the world’s most elite money managers lately. There were 34 hedge funds in our database with PDD holdings at the end of September. Our calculations also showed that PDD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here).
Lei Zhang of Hillhouse Capital 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 look at the recent hedge fund action regarding Pinduoduo Inc. (NASDAQ:PDD).
Do Hedge Funds Think PDD Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 59% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in PDD over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Tiger Global Management LLC, managed by Chase Coleman, holds the number one position in Pinduoduo Inc. (NASDAQ:PDD). Tiger Global Management LLC has a $2.4968 billion position in the stock, comprising 6.4% of its 13F portfolio. The second largest stake is held by Hillhouse Capital Management, managed by Lei Zhang, which holds a $1.8176 billion position; 14.5% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism comprise Brad Gerstner’s Altimeter Capital Management, Renaissance Technologies and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Panview Capital allocated the biggest weight to Pinduoduo Inc. (NASDAQ:PDD), around 38.18% of its 13F portfolio. Tairen Capital is also relatively very bullish on the stock, setting aside 33.6 percent of its 13F equity portfolio to PDD.
As one would reasonably expect, some big names have jumped into Pinduoduo Inc. (NASDAQ:PDD) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, assembled the largest position in Pinduoduo Inc. (NASDAQ:PDD). LMR Partners had $258.4 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also initiated a $128 million position during the quarter. The other funds with brand new PDD positions are Xiaomeng Tong’s Boyu Capital, James Dinan’s York Capital Management, and Ryan Thall’s Panview Capital.
Let’s also examine hedge fund activity in other stocks similar to Pinduoduo Inc. (NASDAQ:PDD). We will take a look at Toyota Motor Corporation (NYSE:TM), Novartis AG (NYSE:NVS), Merck & Co., Inc. (NYSE:MRK), ASML Holding N.V. (NASDAQ:ASML), PepsiCo, Inc. (NASDAQ:PEP), AT&T Inc. (NYSE:T), and Pfizer Inc. (NYSE:PFE). This group of stocks’ market values resemble PDD’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TM,11,797163,-1 NVS,23,1680463,-2 MRK,82,7171072,2 ASML,30,2976227,7 PEP,56,4288005,4 T,58,1045081,7 PFE,63,1848417,-3 Average,46.1,2829490,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.1 hedge funds with bullish positions and the average amount invested in these stocks was $2829 million. That figure was $10528 million in PDD’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. Pinduoduo Inc. (NASDAQ:PDD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PDD is 70.3. 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. 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 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 beat the market again by 0.8 percentage points. Unfortunately PDD wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on PDD were disappointed as the stock returned -20.2% since the end of December (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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.