Do Hedge Funds Love Zoom Video Communications, Inc. (ZM)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Zoom Video Communications, Inc. (NASDAQ:ZM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Zoom Video Communications, Inc. (NASDAQ:ZM) has experienced a decrease in activity from the world’s largest hedge funds recently. Zoom Video Communications, Inc. (NASDAQ:ZM) was in 56 hedge funds’ portfolios at the end of September. The all time high for this statistic is 59. There were 59 hedge funds in our database with ZM positions at the end of the second quarter. Our calculations also showed that ZM isn’t 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. With all of this in mind let’s take a glance at the recent hedge fund action regarding Zoom Video Communications, Inc. (NASDAQ:ZM).

Cathie Wood of ARK Investment Management

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

At the end of September, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in ZM over the last 25 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Tiger Global Management LLC held the most valuable stake in Zoom Video Communications, Inc. (NASDAQ:ZM), which was worth $1246 million at the end of the third quarter. On the second spot was ARK Investment Management which amassed $1155.4 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Coatue 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 Jeneq Management allocated the biggest weight to Zoom Video Communications, Inc. (NASDAQ:ZM), around 5.38% of its 13F portfolio. Abdiel Capital Advisors is also relatively very bullish on the stock, designating 4.41 percent of its 13F equity portfolio to ZM.

Seeing as Zoom Video Communications, Inc. (NASDAQ:ZM) has witnessed falling interest from the smart money, logic holds that there exists a select few hedgies that decided to sell off their full holdings in the third quarter. At the top of the heap, Lei Zhang’s Hillhouse Capital Management dumped the largest position of the 750 funds watched by Insider Monkey, worth about $397.6 million in stock, and Josh Resnick’s Jericho Capital Asset Management was right behind this move, as the fund dumped about $202.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Zoom Video Communications, Inc. (NASDAQ:ZM). These stocks are Marsh & McLennan Companies, Inc. (NYSE:MMC), General Motors Company (NYSE:GM), Fidelity National Information Services Inc. (NYSE:FIS), Duke Energy Corporation (NYSE:DUK), Crown Castle International Corp. (NYSE:CCI), Chubb Limited (NYSE:CB), and The Bank of Nova Scotia (NYSE:BNS). This group of stocks’ market values are closest to ZM’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.6 hedge funds with bullish positions and the average amount invested in these stocks was $2670 million. That figure was $6004 million in ZM’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 17 bullish hedge fund positions. Zoom Video Communications, Inc. (NASDAQ:ZM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZM is 63. 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 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately ZM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ZM were disappointed as the stock returned -19.2% since the end of September (through 11/30) 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 many of these stocks already outperformed the market since 2019.

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