Is Ferrari N.V. (RACE) A Good Stock To Buy?

Reymerlyn Martin

We at Insider Monkey have gone over 738 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of Ferrari N.V. (NYSE:RACE) based on that data.

Ferrari N.V. (NYSE:RACE) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 28 hedge funds' portfolios at the end of March. At the end of this article we will also compare RACE to other stocks including Red Hat, Inc. (NYSE:RHT), Xilinx, Inc. (NASDAQ:XLNX), and Nokia Corporation (NYSE:NOK) to get a better sense of its popularity.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

We're going to view the fresh hedge fund action regarding Ferrari N.V. (NYSE:RACE).

What does the smart money think about Ferrari N.V. (NYSE:RACE)?

Heading into the second quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards RACE over the last 15 quarters. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

RACE_jun2019
RACE_jun2019

Among these funds, Darsana Capital Partners held the most valuable stake in Ferrari N.V. (NYSE:RACE), which was worth $267.6 million at the end of the first quarter. On the second spot was D1 Capital Partners which amassed $207.2 million worth of shares. Moreover, Melvin Capital Management, Alatus Capital, and Point72 Asset Management were also bullish on Ferrari N.V. (NYSE:RACE), allocating a large percentage of their portfolios to this stock.

Because Ferrari N.V. (NYSE:RACE) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of money managers that slashed their full holdings heading into Q3. Intriguingly, Ari Zweiman's 683 Capital Partners cut the biggest investment of the "upper crust" of funds watched by Insider Monkey, worth about $12.4 million in stock. Jim Simons's fund, Renaissance Technologies, also said goodbye to its stock, about $11.8 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Ferrari N.V. (NYSE:RACE) but similarly valued. These stocks are Red Hat, Inc. (NYSE:RHT), Xilinx, Inc. (NASDAQ:XLNX), Nokia Corporation (NYSE:NOK), and Nutrien Ltd. (NYSE:NTR). This group of stocks' market valuations resemble RACE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RHT,66,5213219,1 XLNX,56,1633835,8 NOK,26,386822,-1 NTR,25,389776,-7 Average,43.25,1905913,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.25 hedge funds with bullish positions and the average amount invested in these stocks was $1906 million. That figure was $1051 million in RACE's case. Red Hat, Inc. (NYSE:RHT) is the most popular stock in this table. On the other hand Nutrien Ltd. (NYSE:NTR) is the least popular one with only 25 bullish hedge fund positions. Ferrari N.V. (NYSE:RACE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on RACE as the stock returned 7.8% during the same time frame and outperformed the market by an even larger margin.

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

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