In this article, we will look at the 10 growth stocks that hedge funds are dumping. If you want to see stocks that hedge funds are buying, you can go to 5 Stocks Hedge Funds Are Buying.
Growth stocks had one of their historically worst years in 2022, as interest rates climbed to bring down inflation. The growth-heavy Nasdaq Composite lost over 30% of its value as the year came to an end. Tech was the victim of huge sell-offs and also mass lay-offs as the Fed remained hawkish through year-end. 2023 got off to an interesting start, with the Nasdaq rallying above 12,000 in February. However, the key question remains about whether the Fed will continue to remain hawkish in 2023 or will it pivot to a relatively dovish stance? A hawkish Fed means higher interest rates, which are not good for growth as they put a strain on these companies’ future earnings.
Hedge Fund Consultant: “I Think The Fed Is Now Probably Gonna End Up Cutting Rates By 100 Basis Points”
On March 10, Silicon Valley Bank collapsed after it failed to raise capital and resolve its liquidity crisis. Shortly after the collapse of the bank, Larry McDonald appeared in an interview on CNBC to discuss his view on what’s ahead for the financial services sector, the risk of contagion, and what he thinks the Fed is going to do. Larry McDonald is a New York Times bestselling author, a renowned financial consultant, and is also held in high esteem as a risk consultant, particularly for hedge funds and high-net-worth investors.
According to Larry McDonald, larger banks have relatively more resources and experience in managing interest rate risk than smaller regional banks. Therefore, the risk of contagion from the collapse of SVB to large banks is relatively smaller than the risk of contagion to regional banks. Larry McDonald thinks that the Fed needs to raise interest rates right now in order to bring down inflation. However, he also sees the Fed cutting rates significantly by the end of the year. Here are some comments from Larry McDonald:
“They (the Fed) need to get inflation down and so they need to tighten financial conditions. And so they’re doing that, and now we’re having a run on some of these banks… I think the Fed’s gonna now probably end up cutting rates by 100 basis points by December.”
Larry McDonald explained his view with the help of an analogy. According to Larry McDonald, the Fed has to take care of two separate fires, one is the inflation fire and the other one is the risk of contagion. The Fed will do that by using its fire hose, that is interest rates, differently throughout 2023. Here is what Larry McDonald said:
“So There’s an inflation fire. They’re (the Fed) pulling out the fire hose with (tightening) financial conditions trying to put that out. And so that’s the fire they’re dealing with now. The problem is, when you do that, our 21 Lehman systemic indicators are at the highest levels since Lehman and Covid right now. They’re exploding higher. So now, within the next couple of months, as the contagion brews up this channel, up to high yield, leveraged loans, across the entire ecosystem, that’s when the Fed is going to have to bring out the other fire hose and cut rates, probably within 6 to 9 months.”
To conclude, Larry McDonald sees the Fed raising interest rates right now but eventually, in the back half of 2023, he thinks the Fed will end up cutting rates as “contagion brews up”.
Investors have repositioned themselves throughout 2022 as interest rates went through the roof. In a volatile market environment, such as the one we are in right now, it is imperative to know where big money managers are placing their bets and what they are avoiding. This can save retail investors from potential losses. We have compiled a list of 10 growth stocks that hedge funds have dumped in the fourth quarter of 2022, and also a list of the 5 stocks that hedge funds have bought. Stocks that experienced an influx of institutional money in Q4 2022 include Activision Blizzard, Inc. (NASDAQ:ATVI), Chart Industries, Inc. (NASDAQ:GTLS), and Mobileye Global Inc. (NASDAQ:MBLY).
Photo by Pascal Bernardon on Unsplash
Our Methodology
To determine the 10 growth stocks hedge funds are fleeing and the 5 stocks that hedge funds are buying instead, we consulted Insider Monkey’s proprietary database of more than 900 elite hedge funds. We calculated the hedge fund sentiment for each stock. We narrowed down our list to the 10 growth stocks that had the highest number of hedge fund exits in Q4 2022. After that, we picked the 5 stocks that had the highest number of hedge fund initiations.
For growth stocks that hedge funds have fled in Q4 2022, we have ranked the stocks in ascending order of the number of hedge funds that sold the stock. For stocks that hedge funds have bought, we have ranked the stocks in ascending order of the number of hedge funds that bought the stock. Where the number of hedge funds that sold/bought were the same, we used the number of hedge fund holders as the tie-breaker.
Hedge Funds Are Fleeing These 10 Growth Stocks.
15. Paypal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 115
Number of Hedge Funds That Sold: 11
Payments giant Paypal Holdings, Inc. (NASDAQ:PYPL) released earnings for the fiscal fourth quarter of 2022 on February 9. The company reported an EPS of $1.24 and outperformed EPS estimates by $0.04. The company’s revenue for the quarter amounted to $7.38 billion and fell short of expectations by $8.55 million.
At the end of Q4 2022, 115 hedge funds were long Paypal Holdings, Inc. (NASDAQ:PYPL) and disclosed positions worth $5.10 billion in the company. This is compared to 126 hedge funds in Q3 2022 with stakes worth $6.78 billion. The hedge fund sentiment for the stock is negative. The stock is placed tenth among the growth stocks hedge funds are fleeing.
As of December 31, Citadel Investment Group is the largest investor in Paypal Holdings, Inc. (NASDAQ:PYPL) and has a position worth $481 million in the company.
Here is what RiverPark Advisors had to say about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q4 2022 investor letter:
“PayPal Holdings, Inc. (NASDAQ:PYPL)l: PayPal shares were a top detractor for 4Q, reporting slightly weaker than expected 3Q payment volumes and 4Q payment volume guidance. The company nevertheless reported betterthan-expected EPS on improved margins. PYPL operates at significantly lower margins than its payment competitors Visa and Mastercard, and 3Q results and 4Q guidance show early improvements in its margins and ability to drive higher cash flow growth in the near term. For 3Q, PYPL reported $1.8 billion of FCF, the highest quarterly FCF number in its history, representing 37% growth. The company expects continued operating margin expansion for 4Q and full year FCF of more than $5 billion, representing a 6% FCF yield.
PayPal is the most accepted digital wallet – with almost triple the acceptance of Apple Pay, the number two digital wallet. PayPal is a key beneficiary of the ongoing shift to ecommerce driven digital payments, as well as consumer-to-consumer payment trends through its Venmo peer-topeer (P2P) payment service. With a 3Q non-GAAP operating margin of 22%, PYPL also has significant margin expansion potential given that competitors Adyen, Visa and Mastercard have 50%-65% operating margins. We believe the combination of secular growth, expanding operating leverage and the strategic use of the company’s significant and growing cash balance should fuel high teens earnings growth over the next five years. This, to us, presents an excellent risk/reward given that PYPL trades at a below market multiple.”
14. Bill.com Holdings, Inc. (NYSE:BILL)
Number of Hedge Fund Holders: 58
Number of Hedge Funds That Sold: 12
Bill.com Holdings, Inc. (NYSE:BILL) is a leading fintech company and provider of cloud-based software for financial operations. As of March 10, the stock has lost 60.34% over the past 6 months.
12 hedge funds fled Bill.com Holdings, Inc. (NYSE:BILL) in Q4 2022. The stock was held by 58 investors at the end of Q4 2022. These funds held collective positions worth $1.15 billion in the company, down from $1.66 billion in the previous quarter with 70 positions. The stock is one of the growth stocks that hedge funds have sold in Q4 2022.
As of December 31, Alkeon Capital Management is the most prominent stockholder in Bill.com Holdings, Inc. (NYSE:BILL) and has disclosed a stake worth $215.4 million in the company.
Here is what TimesSquare Capital Management had to say about Bill.com Holdings, Inc. (NYSE:BILL) in its Q3 2022 investor letter:
“Bill.com Holdings, Inc. (NYSE:BILL) offers cloud-based software that simplifies, digitizes, and automates back-office functions for small and mid-sized businesses. The company has indicated that customer spending softened a bit in recent months and that has been factored into forward guidance. We decided to sell out of the position, which had declined by -20% while it was held in the quarter.”
Stocks that hedge funds are pouring hefty investments into right now include Activision Blizzard, Inc. (NASDAQ:ATVI), Chart Industries, Inc. (NASDAQ:GTLS), and Mobileye Global Inc. (NASDAQ:MBLY).
13. Cloudflare, Inc. (NYSE:NET)
Number of Hedge Fund Holders: 40
Number of Hedge Funds That Sold: 13
Cloudflare, Inc. (NYSE:NET) is a provider of cloud-based cybersecurity software and services. The stock has lost 21.24% over the past 6 months, as of March 10.
Cloudflare, Inc. (NYSE:NET) was abandoned by 13 hedge funds in Q4 2022. The stock was a part of 40 investors’ portfolios, down from 53 investors’ portfolios in the third quarter of 2022. The stock is placed eighth among the top growth stocks hedge funds have fled in Q4 2022.
As of December 31, Marshall Wace LLP is the leading investor in Cloudflare, Inc. (NYSE:NET) and has disclosed a position worth $119.5 million in the company.
Here is what Ron Baron’s Baron Funds had to say about Cloudflare, Inc. (NYSE:NET) in its Q3 2022 investor letter:
“We continued to build our position in Cloudflare, Inc. (NYSE:NET) during the quarter as the shares declined with the overall software space and the long-term risk/ reward balance became more compelling. The company reported a strong second quarter, with revenue growth accelerating to 54%, as well as better gross and operating margins. Third quarter guidance was also ahead of Wall Street expectations. Given Cloudflare’s proprietary network and massive global scale, its software products have a disruptive price-performance advantage over competitors. As the company introduces new products as well as disruptive packaging/pricing, its unit level economics should continue to improve over time, with the company already well ahead of its long-term gross margin target of 74%, reporting 78.9% for the second quarter. This drives strong cross/upselling activity with customers, reflected in strong net-dollar expansion rates in excess of 125%. Indeed, in the most recent quarters, customers purchasing five or more products reached 81% of the base, six or more products reached 70% of the base, and seven or more products reached 58% of the base. Enterprise penetration continues to be a key long-term driver, with 1,749 customers now spending over $100,000 annually with the company, growing 61% and now accounting for over 60% of total revenue. With approximately 152,000 paying customers at the end of last quarter, large enterprise customers still represent just 1% of total paid customers and thus a material growth opportunity in the coming years. We continue to have high confidence in the company’s ability to innovate at a rapid pace (announced 20 new products or enhancements in September alone), package and bundle with disruptive pricing, and take material share in its large and growing addressable markets.”
12. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)
Number of Hedge Fund Holders: 34
Number of Hedge Funds That Sold: 13
Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is an American clinical-stage biopharmaceutical company involved in the the research and development of treatments for individuals who are afflicted by severe neurological and neuropsychiatric illnesses. As of March 10, the stock has lost 91.23% over the past 6 months.
At the close of Q4 2022, 13 hedge funds exited their positions in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), placing it seventh on our list of the most heavily sold growth stocks in Q4 2022. The stock was held by 34 hedge funds that disclosed collective positions worth $303.5 million in the company. This is compared to 47 hedge funds in the previous quarter with stakes worth $2.63 billion. The hedge fund sentiment for the stock is negative.
As of December 31, Knoll Capital Management is the top investor in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) and disclosed a stake worth $6.25 million in the company.
11. Monolithic Power Systems, Inc. (NASDAQ:MPWR)
Number of Hedge Fund Holders: 30
Number of Hedge Funds That Sold: 13
Monolithic Power Systems, Inc. (NASDAQ:MPWR) is a semiconductor company that develops and markets semiconductor-based power electronics. The company’s primary end markets include computing & storage, automotive, industrial, communications, and consumer electronics.
On February 13, Monolithic Power Systems, Inc. (NASDAQ:MPWR) disclosed in a regulatory filing that the company’s CEO sold $3.12 million worth of shares of the company’s common stock.
At the end of the fourth quarter of 2022, 30 hedge funds held positions in Monolithic Power Systems, Inc. (NASDAQ:MPWR). The total value of these stakes amounted to $818.5 million, down from $1.34 billion in the previous quarter with 43 positions. As of December 31, Holocene Advisors is the largest shareholder in Monolithic Power Systems, Inc. (NASDAQ:MPWR) and held a position worth $169 million in the company.
Here is what Artisan Partners had to say about Monolithic Power Systems, Inc. (NASDAQ:MPWR) in its Q4 2022 investor letter:
“During the quarter, we began new GardenSM positions in Monolithic Power Systems, Inc.(NASDAQ:MPWR), Industrie De Nora and Saia. Monolithic Power Systems designs analog power-management chips for a wide variety of industrial and consumer devices. The company is executing well as its customers convert their analog, digital and power semiconductor chips into its single-chip design, which is energy efficient and priced lower than peers. While we acknowledge certain areas of the business may be a source of weakness in the near term (storage, computing and consumer), we believe much of that is now discounted. However, the enterprise and auto areas of the business are set up to be big growth drivers over the next couple years given the company’s differentiation in both segments, which is driving market share gains and pricing power. Based on its unique ability to offer highly integrated solutions and solve complex power management issues across multiple end-applications, we believe the profit cycle runway ahead is meaningful and initiated a GardenSM position.”
10. Western Digital Corporation (NASDAQ:WDC)
Number of Hedge Fund Holders: 31
Number of Hedge Funds That Sold: 15
Western Digital Corporation (NASDAQ:WDC) is a leading global provider of data storage products and services. On January 31, the company reported earnings for the second quarter of fiscal 2023. The company reported a loss per share of $0.42 and missed EPS estimates by $0.29. The company’s revenue for the quarter fell by 35.71% on a year-over-year basis and amounted to $3.11 billion.
15 hedge funds fled Western Digital Corporation (NASDAQ:WDC) in the fourth quarter of 2022. The stock was held by 31 investors at the close of Q4 2022, down from 46 hedge funds in Q3 2022. The stock is the fifth-most heavily sold growth stocks by hedge funds.
As of December 31, Lyrical Asset Management is the largest stockholder in Western Digital Corporation (NASDAQ:WDC) and has disclosed a position worth $111.4 million in the company.
Here is what ClearBridge Investments had to say about Western Digital Corporation (NASDAQ:WDC) in its Q4 2022 investor letter:
“Beyond the sale of ImmunoGen, our transactions were relatively limited in the fourth quarter. We cut our cyclical technology exposure with a trim to hard disk drive maker Western Digital Corporation (NASDAQ:WDC), which has higher than average financial leverage for our portfolio and is facing a challenging demand environment.”
9. Palo Alto Networks, Inc. (NYSE:PANW)
Number of Hedge Fund Holders: 85
Number of Hedge Funds That Sold: 18
Palo Alto Networks, Inc. (NYSE:PANW) is another cybersecurity giant that hedge funds sold heavily in Q4 2022. On February 28, the company disclosed in a regulatory filing that its CEO, Nikesh Arora, sold $4.48 million worth of shares of the company’s common stock. On March 2, Palo Alto Networks, Inc. (NYSE:PANW) disclosed that its CTO, Nir Zuk, sold $6.74 million worth of shares of the company’s common stock on March 1.
Palo Alto Networks, Inc. (NYSE:PANW) was abandoned by 18 hedge funds in Q4 2022. The stock was held by 85 hedge funds at the close of Q4 2022, that disclosed collective positions worth $3.27 billion. This is compared to 103 hedge funds in the previous quarter with stakes worth $4.20 billion. As of December 31, Citadel Investment Group is the most prominent shareholder in the company and has a stake worth $363.7 million.
Here is what ClearBridge Investments had to say about Palo Alto Networks, Inc. (NASDAQ:PANW) in its Q4 2022 investor letter:
“Stock selection within the IT sector was the main detractor from relative performance during the period. In addition to rate hikes compressing the multiples of longerduration, high growth companies, recession concerns were also a headwind. IT companies which had proven resilient against customer budget reductions earlier in the year are starting to feel the impact of spending slowdowns as companies further scrutinize expenses in light of economic uncertainty. For example, Palo Alto Networks, Inc. (NASDAQ:PANW), which provides enterprise security solutions including next-generation firewalls and threat detection software, faced a challenging environment as customers delayed purchases and orders. However, we remain convinced of the company’s long-term growth prospects as an industry leader in a critical field and as digital attacks and ransomware continue to grow.”
8. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 66
Number of Hedge Funds That Sold: 19
As of March 10, cybersecurity giant CrowdStrike Holdings, Inc. (NASDAQ:CRWD) has lost 38.64% over the past 6 months. 19 hedge funds exited their positions in CrowdStrike Holdings, Inc. (NASDAQ:CRWD) at the end of Q4 2022, placing it third on our list of the growth stocks hedge funds are fleeing.
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) was a part of 66 investors’ portfolios that disclosed collective positions worth $1.64 billion in the company. This is compared to 85 hedge funds in the previous quarter with stakes worth $2.97 billion. The hedge fund sentiment for the stock is negative.
As of December 31, SCGE Management is the largest shareholder in CrowdStrike Holdings, Inc. (NASDAQ:CRWD) and has disclosed a position worth $154.9 million in the company.
Here is what Baron Funds had to say about CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its Q4 2022 investor letter:
“CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a market leading cloud-native cybersecurity vendor. Shares declined on the back of a weaker-than-expected earnings report, in which revenue beat Street expectations but net new annual recurring revenue (ARR) slightly missed consensus due to elongated sales cycles that impacted deals with small- and medium-sized businesses (SMB) and phased start dates with larger customers. For example, instead of 100,000 end-points starting on day 1, start 75,000 on day 1 and 25,000 six months later. For fuller context, in the fiscal third quarter, revenue grew 53%, ARR grew 54%, net new ARR was $198 million vs. expectations about $20 million higher, and the business generated 30% FCF margins. Accounting for the net new ARR miss, the company offered conservative initial guidance for fiscal year 2024 (ending January 2024), with ARR growth in the low 30s, subscription revenue growth in the low-to-mid 30s, and FCF margins around the 30% level. While this was a painful reset, CrowdStrike noted its SMB win rates had improved, enterprise win rates remained constant, its gross and net retention rates are at best-in-class levels, and its emerging products were experiencing rapid adoption. Despite short-term weakness, Morgan Stanley’s fourth quarter CIO survey showed security software projects remained the top CIO priority, and our research continues to indicate that CrowdStrike is one of the few true platforms in the security space.”
7. ZoomInfo Technologies Inc. (NASDAQ:ZI)
Number of Hedge Fund Holders: 31
Number of Hedge Funds That Sold: 19
Pandemic darling ZoomInfo Technologies Inc. (NASDAQ:ZI) is the second-most heavily sold stocks by hedge funds. 19 hedge funds exited their positions in the company in Q4 2022. As of March 10, the stock has crashed 52.15% over the past 6 months.
At the end of Q4 2022, 31 hedge funds held stakes in ZoomInfo Technologies Inc. (NASDAQ:ZI). The total value of these stakes amounted to $648.7 million, down from $1.09 billion in the previous quarter with 50 positions. As of December 31, Tiger Global Management LLC is the leading investor in the company and has a position worth $187.8 million.
Here is what Baron Funds had to say about ZoomInfo Technologies Inc. (NASDAQ:ZI) in its Q4 2022 investor letter:
“ZoomInfo Technologies Inc. (NASDAQ:ZI) provides business intelligence software that companies use to inform their go-to-market strategy, with modules focused on areas including sales, marketing, operations, and talent. Shares detracted from performance after the company predicted weaker revenue trends, driven by meaningful macroeconomic weakness and slowing purchasing trends by its customers. We believe that ZoomInfo has the potential to be a much larger company as it grows into its ever expanding $70 billion total addressable market and potential adjacent markets such as marketing and talent acquisition software.
We reduced our stake in ZoomInfo Technologies Inc., which provides business intelligence software, given uncertainty about its near-term business trends in a more challenging environment for its primary customer base.”
While ZoomInfo Technologies Inc. (NASDAQ:ZI) is one of the most heavily sold stocks by hedge funds right now, some of the most heavily-bought stocks by hedge funds include Activision Blizzard, Inc. (NASDAQ:ATVI), Chart Industries, Inc. (NASDAQ:GTLS), and Mobileye Global Inc. (NASDAQ:MBLY).
6. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 240
Number of Hedge Funds That Sold: 29
On February 2, Amazon.com, Inc. (NASDAQ:AMZN) posted earnings for the fiscal fourth quarter of 2022. The company reported an EPS of $0.03 but missed EPS estimates by $0.14. The company’s revenue for the quarter amounted to $149.20 billion, up 8.58% year over year and ahead of Wall Street consensus by $3.43 billion.
Amazon.com, Inc. (NASDAQ:AMZN) is the most heavily sold growth stock among elite money managers. 29 hedge funds sold the stock in the fourth quarter of 2022. Amazon.com, Inc. (NASDAQ:AMZN) was held by 240 investors that disclosed collective stakes worth $27.5 billion in the company. This is compared to 269 hedge funds in the previous quarter with stakes worth $34.6 billion. The hedge fund sentiment for the stock is negative.
As of December 31, Harris Associates is the top shareholder in Amazon.com, Inc. (NASDAQ:AMZN) and has disclosed a stake worth $1.62 billion in the company.
Here is what Weitz Investment Management had to say about Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2022 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN), perhaps the ultimate “COVID beneficiary,” has seen its shares dip below pre-pandemic levels as investors brace for a potential recession’s impact both on retail spending as well as slowing adoption of Amazon’s cloud infrastructure service, Amazon Web Services.
Meta, Alphabet, Amazon and CarMax were all top detractors for the quarter and calendar year periods (FIS and Liberty Broadband, respectively, complete the quarterly and calendar-year detractor lists.) To varying degrees, each is managing through cyclical challenges during a period of substantial investor pessimism. Drawdowns of this magnitude are painful, and it may be prudent for management to moderate the pace of some investments, but we remain encouraged by their long-term focus. In the short run, cutting spending indiscriminately to “defend earnings” may lessen the pain of a drawdown, but it seldom grows a company’s business value — the ultimate prize.”
Click to continue reading and see 5 Stocks Hedge Funds Are Buying.
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Disclosure: None. Hedge Funds Are Fleeing These 10 Growth Stocks is originally published on Insider Monkey.
