Did Hedge Funds Catch A Break With Netflix, Inc. (NFLX)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought Netflix, Inc. (NASDAQ:NFLX) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Is Netflix, Inc. (NASDAQ:NFLX) undervalued? The best stock pickers were taking a pessimistic view. The number of long hedge fund positions decreased by 7 lately. Netflix, Inc. (NASDAQ:NFLX) was in 106 hedge funds’ portfolios at the end of September. The all time high for this statistic is 116. Our calculations also showed that NFLX ranked #15 among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we’re going to view the new hedge fund action surrounding Netflix, Inc. (NASDAQ:NFLX).

Boykin Curry of Eagle Capital

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

At Q3’s end, a total of 106 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NFLX over the last 25 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Netflix, Inc. (NASDAQ:NFLX), with a stake worth $2633.4 million reported as of the end of September. Trailing Citadel Investment Group was Fisher Asset Management, which amassed a stake valued at $2539.4 million. Eagle Capital Management, Matrix Capital Management, and SRS Investment Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Matrix Capital Management allocated the biggest weight to Netflix, Inc. (NASDAQ:NFLX), around 13.89% of its 13F portfolio. Blacksheep Fund Management is also relatively very bullish on the stock, designating 13.76 percent of its 13F equity portfolio to NFLX.

Since Netflix, Inc. (NASDAQ:NFLX) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that decided to sell off their full holdings heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the 750 funds followed by Insider Monkey, comprising an estimated $208.3 million in stock. Gavin Baker’s fund, Atreides Management, also dumped its stock, about $102.2 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 7 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Netflix, Inc. (NASDAQ:NFLX) but similarly valued. These stocks are salesforce.com, inc. (NYSE:CRM), Comcast Corporation (NASDAQ:CMCSA), Shell plc (NYSE:RDS), Exxon Mobil Corporation (NYSE:XOM), Toyota Motor Corporation (NYSE:TM), Pfizer Inc. (NYSE:PFE), and Oracle Corporation (NYSE:ORCL). All of these stocks’ market caps are closest to NFLX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.6 hedge funds with bullish positions and the average amount invested in these stocks was $5308 million. That figure was $14759 million in NFLX’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 10 bullish hedge fund positions. Netflix, Inc. (NASDAQ:NFLX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NFLX is 87.5. 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 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 and beat the market again by 3.6 percentage points. Unfortunately, NFLX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NFLX were disappointed as the stock returned -30% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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