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Hedge Funds Join the JD.com Movement

Posted on May 26th, 2020

JD.com, Inc. (JD) has seen a reasonably upward trend in performance over the past six months, seemingly riding out the storm that the global coronavirus pandemic has brought upon the stock market. The China-based online direct sales company reported better than expected results on May 23, 2020, and now leads the S&P 500 with a staggering gain of approximately 41.6% versus a decline of 8.5%. 

Strong Results Despite Global Tensions

JD had an impressive rise in the WhaleWisdom Heatmap in the first quarter, with a ranking at one. Despite JD’s forward movement and growth in this challenging stock market, JD’s ties to China leave it partially influenced by the recent rising U.S.-China tensions related to the pandemic. While arguments over blame for the coronavirus have not had a significant impact on Wall Street, the debate and tension have nevertheless hung over the market and remains a concern for some investors.

Still, JD’s strong ranking and position on the WhaleWisdom Heatmap may be a reason for hope for the stock’s future.

(WhaleWisdom)

Institutions Are Buying

Institutions overall were buying the stock, with the number of aggregate 13F shares increasing by approximately 12.4% as of March 31, 2020, to roughly 284.2 million from about 253 million just three months earlier. For comparison, hedge funds increased their total 13F shares by about 2.9%, up to 613.7 million from 596.3 million.

(WhaleWisdom)

Analysts’ Forecast Are Favorable

AllianceBernstein Holding LP increased JD’s price target to $60 from $55. However, Bernstein is not the only one with faith that the stock will go higher, as many Wall Street analysts are bullish on the stock. Overall, 30 analysts cover the stock with an average price target of $58.08, or 16.4% higher than the equity’s price on May 22.

Currently, analysts estimate second-quarter earnings per share of about $0.35, an increase of 8% versus a year ago. Meanwhile, analysts forecast revenue of about $26.6 billion, an increase in year over year growth of approximately 24.8%. JD has seen active customer accounts rise, with a significant increase in daily monthly mobile users in March, up about 46% year-over-year.

Sustained Growth

JD has been fortunate to see benefits from coronavirus-related demand for online shopping. While JD is not cheap on a PE basis, and political tensions between the US and China remain, there is potential for sustained growth for the company. JD’s stock may still garner the attention of investors due to the longer-term potential for payoff.

Nvidia Corp. (NVDA) has faced a rocky path during its upward climb, and while March was an especially challenging month for its stock, fortunately, performance improved as of mid-May. The stock has risen approximately 44.3% in comparison to the S&P 500’s loss of about 12% so far this year.

After over a year in the making, Nvidia recently finalized its $6.9 billion acquisition of Mellanox Technologies, Ltd., after receiving approval from China’s antitrust authority. While China’s approval comes with certain conditions, they appear reasonable and should not hinder the success of the deal. The acquisition should bring great potential for growth. So it is understandable that the purchase would have a favorable impact on the chipmaker, even in a time of economic stress for the overall market from the Coronavirus pandemic.

Nvidia is expected to report results on May 21, with investors anxiously awaiting the earnings forecast.

Institutions Are Buying

Institutions overall are buying the stock, though with a conservative stance as the number of aggregate 13F shares increased by approximately 0.5% as of December 31, 2019, to roughly 399.8 million from 397.9 million three months earlier. For comparison, hedge funds increased their total 13F shares by about 1.4%, up to 151.1 million from approximately 149 million.

Nvidia’s WhaleWhisdom Heatmap rating shot up to an impressive 42 on December 31, up from a previous ranking of 89 three months earlier. Also, as of May 15, Nvidia’s stock was trading at a record high.

(WhaleWisdom)

Estimates Reflect A Positive Outlook

Growth estimates for Nvidia are strong. Analysts estimate fiscal first quarter 2021 earnings per share of about $1.68 with an impressive increase and year over year growth of approximately 90.8%. Meanwhile, revenue is forecast to have increased by 34.8%to $2.99 billion. Jefferies Group, LLC., recently highlighted Nvidia as a core holding. In addition to favorable words from Jefferies, Needham & Co., recently raised Nvidia’s price target to $360, predicting further upside.

Strong Performance in an Uncertain Market

Nvidia’s strong 2020 performance to-date has come at a time when the S&P 500 has suffered considerable drops related to the global Coronavirus pandemic. While Nvidia, like other technology stocks, hasn’t been untouched by Coronavirus related sell-offs, they’ve benefited from the application of their GPU technology during this time, as well as the acquisition of Mellanox. It likely bodes well for the stock and a strong reason why the shares are held favorably by some of the top institutions and hedge funds.

Cisco Systems, Inc. (CSCO) has had a turbulent start to 2020, but fortunately, performance has improved over the past two months, indicating a potential turn around for the technology company. Cisco serves as one of the biggest manufacturers of Internet Protocol based networking and communication products and has seen a recent jump in demand for its services by companies and their home-bound employees during the COVID-19 pandemic.

The stock fell about 10.4% thus far in 2020, which is slightly worse than the S&P 500’s decline of 9.3%. The stock’s underperformance could be a continuation of selling among institutions that started at the end of 2019.

Cisco is expected to report fiscal third quarter results on May 13, with earnings forecast to fall by approximately 9.3% to $0.70 per share. One bright spot for Cisco this quarter maybe its Webex collaboration as more people worked from home due to the shutdown order by many states due to the coronavirus.

Institutions Are Selling

Cisco has fallen out of favor; looking at the top hedge funds, 141 added to an existing position as 143 reduced their holdings. Institutions overall were selling the stock, with the number of aggregate 13F shares decreasing by approximately 2.6% as of December 31, 2019, to roughly 3 billion from 3.08 billion three months prior. For comparison, hedge funds decreased their total 13F shares to approximately 868.7 million from about 890.2 million.

(Whale Wisdom)

Mixed Views on Cisco

In April 2020, Cisco was downgraded from Overweight to Sector Weight by KeyBanc Capital Markets, Inc. Shortly before this downgrade, Cisco began to experience a surge in its Webex video conferencing platform, a sign of business potential. However, many analysts believe that the uptick in customer usage could ultimately slow. Still, Goldman Sachs Group, Inc. includes Cisco on its list of high yielders with relatively safe dividend payouts.

Hopeful Outlook

While seeing an overall loss in value for the first four and a half months of 2020, Cisco’s rebound in the past two months’ time may just serve as an example of light at the end of the tunnel. Cisco has seen increased demand for its conferencing tools for business meetings; while this may have sparked from forced telecommuting during the health pandemic, the circumstances pulled in a broader audience of customers with the potential for permanence. Investors may see a payoff if the company can hold onto newer pandemic customers and demonstrate the continued value of its services for virtual meetings and workforce versatility.

The Walt Disney Co. (DIS) had a challenging performance over the first four months of 2020, with shares falling by over 27%, compared to the S&P 500 drop of over 12%. Understandably, Disney has been deeply impacted by health and safety concerns, forced business closures, and stay-at-home orders across the United States and around the world, all related to the global COVID-19 pandemic.

However, while the pandemic has certainly hurt Disney’s parks, resorts, and movie production, it has also contributed to an increase in new customers for its new Disney+ streaming service. The entertainment company will next report fiscal second-quarter results on May 5, 2020.

Estimates Reflect an Uncertain Outlook

Analysts estimate second-quarter earnings per share of about $0.90 with a reduction in year over year growth of approximately 44.4% based upon the current period. Overall 2020 estimates are estimated at $2.82, a decline by 51% versus a year ago, while revenue is estimated at approximately $69.8 billion.

Hedge Funds Increased Holdings In The Fourth Quarter

Hedge funds were buying the shares, and during the fourth quarter, the aggregate 13F shares held by hedge funds increased to approximately 349 million from about 347.4 million, an increase of about 0.5%. Of participating hedge funds, 35 created new positions, 176 added to existing positions, 32 closed out their positions, and 177 reduced their holdings.

In contrast to hedge funds’ overall institutions took a small step back, with aggregate 13F shares decreasing to approximately 1.1 billion from about 1.2 billion. Disney now had a Heatmap ranking of 173 in the fourth quarter, down from 119 three months earlier.

(Whale Wisdom)

Lowered Ratings

Disney’s long-term credit rating was lowered to A- at S&P, and then fell off Bank of America’s (BofA) Us 1 List. UBS Group AG downgraded Disney to a Neutral rating from Buy. Many analysts, such as Douglas Mitchelson of Credit Suisse, anticipate increases in Disney’s streaming value and a rebound in the theme park, resort, and Hollywood operations.

Long-Term Potential

While COVID-19 has made making future financial predictions challenging, it’s hard to imagine that Disney will not overcome the downturn and return to strong results once the cloud of the coronavirus pandemic lifts. It is probable that Disney+ business will continue to grow and movie production will eventually resume, and soon. Patient investors are likely to wait it out for business (and economic activity overall) to normalize.

Amazon.com Inc. (AMZN) has had a favorable start to 2020, seeing significant gains in April in particular. Amazon outperformed the S&P 500 in 2020, and as of April 24, rose by approximately 30.4% in comparison to the S&P 500’s loss of about 12.2%.

Amazon has felt the impact of the recent Coronavirus pandemic through hits to its supply chain but also increased demand from customers who require basic staples as well while they follow government advisories and mandates to stay at home. Investors anxiously await to hear final details of first quarter results, as a conference call for this e-commerce and technology company approaches on April 30, 2020.

Rising on The Heatmap

Amazon rose on the WhaleWisdom Heatmap to 19 from 24, showing investors had a positive bias for the stock during the fourth quarter of 2019. Looking at the top hedge funds, 25 added to an existing position as 20 reduced their holdings, as 41 funds held the stock.

(WhaleWisdom)

Institutions Decrease Shares

While hedge funds increased their positions, institutions showed a slight decrease in the stock. The number of aggregate 13F shares decreased by approximately 1.2% as of December 31, 2019, to roughly 274.4 million from 277.6 million three months earlier. For comparison, hedge funds increased their total 13F shares by about 0.4%, up to 91.7 million from 91.3 million.

(WhaleWisdom)

Estimates Are Encouraging for Growth

Amazon’s e-commerce business has experienced both a negative and positive side of the recent Coronavirus pandemic. While Amazon has seen a hit to their supply chain, they have also experienced an increase in demand from customers who require more basic staples as they follow stay-at-home government orders.

While estimates for earnings per share (EPS) is estimated to have declined by about 10% for the first quarter from a year ago, there is still a positive outlook. Quarterly forecast for EPS in 2020 shows a steady rise and are forecast to rise year-over-year by 24.6%.

Analysts Forecast Growth

The upward trend for Amazon is likely to be long-term, based on earnings and revenue estimates. Still, analysts’ perspectives vary. Jefferies Group LLC ‘s analyst, Brent Thill, raised Amazon’s price target from $2,300 to $2,800. Meanwhile, Morgan Stanley acknowledged Amazon as a beneficiary of those working from home during the Coronavirus pandemic and noted in investors should lock in profits at about $2,400 with the stock trading around that price.

Favorable Outlook

While delays in their supply chain have understandably harmed Amazon, these are viewed as short-term and overshadowed by more recent customer trends of buying more from this e-commerce giant. Bullish investors and analysts are likely to stick with this stock.