We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Datadog, Inc. (NASDAQ:DDOG) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Datadog, Inc. (NASDAQ:DDOG) was in 32 hedge funds’ portfolios at the end of December. DDOG shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. There were 39 hedge funds in our database with DDOG holdings at the end of the previous quarter. Our calculations also showed that DDOG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most stock holders, hedge funds are seen as underperforming, outdated financial vehicles of years past. While there are over 8000 funds trading at present, We look at the moguls of this group, around 850 funds. These money managers preside over most of the smart money’s total asset base, and by watching their highest performing stock picks, Insider Monkey has found many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the fresh hedge fund action surrounding Datadog, Inc. (NASDAQ:DDOG).
What does smart money think about Datadog, Inc. (NASDAQ:DDOG)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DDOG over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Alex Sacerdote’s Whale Rock Capital Management has the biggest position in Datadog, Inc. (NASDAQ:DDOG), worth close to $114.7 million, corresponding to 1.9% of its total 13F portfolio. Coming in second is Holocene Advisors, managed by Brandon Haley, which holds a $84.7 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Steve Cohen’s Point72 Asset Management, Ken Griffin’s Citadel Investment Group and Andreas Halvorsen’s Viking Global. In terms of the portfolio weights assigned to each position Kayak Investment Partners allocated the biggest weight to Datadog, Inc. (NASDAQ:DDOG), around 8.4% of its 13F portfolio. North Fourth Asset Management is also relatively very bullish on the stock, earmarking 4.01 percent of its 13F equity portfolio to DDOG.
Since Datadog, Inc. (NASDAQ:DDOG) has faced declining sentiment from the smart money, we can see that there were a few fund managers who sold off their positions entirely heading into Q4. Intriguingly, Jeffrey Talpins’s Element Capital Management sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $6.8 million in stock. Rob Citrone’s fund, Discovery Capital Management, also dropped its stock, about $5.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Datadog, Inc. (NASDAQ:DDOG) but similarly valued. We will take a look at West Pharmaceutical Services Inc. (NYSE:WST), Brown & Brown, Inc. (NYSE:BRO), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), and Carlyle Group LP (NASDAQ:CG). All of these stocks’ market caps resemble DDOG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WST | 29 | 428409 | -5 |
| BRO | 23 | 703042 | -8 |
| MLCO | 35 | 836262 | 8 |
| CG | 13 | 213484 | 5 |
| Average | 25 | 545299 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $545 million. That figure was $439 million in DDOG’s case. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is the most popular stock in this table. On the other hand Carlyle Group LP (NASDAQ:CG) is the least popular one with only 13 bullish hedge fund positions. Datadog, Inc. (NASDAQ:DDOG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on DDOG, though not to the same extent, as the stock returned -23.3% during the first two and a half months of 2020 (through March 16th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
