Do Hedge Funds Love Netflix, Inc. (NFLX)?

In this article we will analyze whether Netflix, Inc. (NASDAQ:NFLX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Netflix, Inc. (NASDAQ:NFLX) was in 104 hedge funds’ portfolios at the end of September. The all time high for this statistics is 114. NFLX investors should pay attention to a decrease in hedge fund sentiment recently. There were 113 hedge funds in our database with NFLX positions at the end of the second quarter. Our calculations also showed that NFLX ranked 18th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to take a look at the recent hedge fund action encompassing Netflix, Inc. (NASDAQ:NFLX).

What does smart money think about Netflix, Inc. (NASDAQ:NFLX)?

At Q3’s end, a total of 104 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in NFLX over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the largest call position in Netflix, Inc. (NASDAQ:NFLX), worth close to $2.7341 billion, comprising 0.8% of its total 13F portfolio. The second most bullish fund manager is Fisher Asset Management, led by Ken Fisher, holding a $1.7659 billion position; the fund has 1.5% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions contain Karthik Sarma’s SRS Investment Management, Lone Pine Capital and David Goel and Paul Ferri’s Matrix Capital Management. In terms of the portfolio weights assigned to each position SRS Investment Management allocated the biggest weight to Netflix, Inc. (NASDAQ:NFLX), around 25.58% of its 13F portfolio. Matrix Capital Management is also relatively very bullish on the stock, earmarking 13.29 percent of its 13F equity portfolio to NFLX.

Because Netflix, Inc. (NASDAQ:NFLX) has experienced bearish sentiment from hedge fund managers, we can see that there is a sect of hedge funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Eashwar Krishnan’s Tybourne Capital Management sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $177.9 million in stock. Andreas Halvorsen’s fund, Viking Global, also sold off its stock, about $162.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 9 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Netflix, Inc. (NASDAQ:NFLX) but similarly valued. These stocks are Intel Corporation (NASDAQ:INTC), The Coca-Cola Company (NYSE:KO), Comcast Corporation (NASDAQ:CMCSA), Merck & Co., Inc. (NYSE:MRK), Bank of America Corporation (NYSE:BAC), Pfizer Inc. (NYSE:PFE), and AT&T Inc. (NYSE:T). This group of stocks’ market valuations are closest to NFLX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 70.4 hedge funds with bullish positions and the average amount invested in these stocks was $10113 million. That figure was $12878 million in NFLX’s case. Bank of America Corporation (NYSE:BAC) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 51 bullish hedge fund positions. Compared to these stocks Netflix, Inc. (NASDAQ:NFLX) is more popular among hedge funds. Our overall hedge fund sentiment score for NFLX is 88.9. 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. 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 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. Unfortunately NFLX wasn’t nearly as successful as these 20 stocks and hedge funds that were betting on NFLX were disappointed as the stock returned -4.7% since the end of the third quarter (through 11/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the more diversified list of the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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