At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Zoom Video Communications, Inc. (NASDAQ:ZM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Zoom Video Communications, Inc. (NASDAQ:ZM) has experienced an increase in activity from the world’s largest hedge funds lately. Zoom Video Communications, Inc. (NASDAQ:ZM) was in 48 hedge funds’ portfolios at the end of June. The all time high for this statistics is 58. Our calculations also showed that ZM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a peek at the latest hedge fund action regarding Zoom Video Communications, Inc. (NASDAQ:ZM).
How are hedge funds trading Zoom Video Communications, Inc. (NASDAQ:ZM)?
At second quarter’s end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ZM over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Zoom Video Communications, Inc. (NASDAQ:ZM) was held by Renaissance Technologies, which reported holding $1839.7 million worth of stock at the end of September. It was followed by Hillhouse Capital Management with a $1738.5 million position. Other investors bullish on the company included Coatue Management, Whale Rock Capital Management, and Lone Pine Capital. In terms of the portfolio weights assigned to each position Hillhouse Capital Management allocated the biggest weight to Zoom Video Communications, Inc. (NASDAQ:ZM), around 15.89% of its 13F portfolio. Abdiel Capital Advisors is also relatively very bullish on the stock, earmarking 8 percent of its 13F equity portfolio to ZM.
As aggregate interest increased, some big names have been driving this bullishness. Lone Pine Capital, initiated the most outsized position in Zoom Video Communications, Inc. (NASDAQ:ZM). Lone Pine Capital had $427.8 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $82.8 million position during the quarter. The other funds with brand new ZM positions are Amish Mehta’s SQN Investors, Glen Kacher’s Light Street Capital, and Alexander Captain’s Cat Rock Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Zoom Video Communications, Inc. (NASDAQ:ZM) but similarly valued. These stocks are Becton, Dickinson and Company (NYSE:BDX), Rio Tinto Group (NYSE:RIO), Crown Castle International Corp. (NYSE:CCI), Cigna Corporation (NYSE:CI), Prologis Inc (NYSE:PLD), Caterpillar Inc. (NYSE:CAT), and Dominion Energy Inc. (NYSE:D). This group of stocks’ market valuations resemble ZM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BDX | 53 | 1971353 | -3 |
| RIO | 20 | 1324146 | 0 |
| CCI | 43 | 1988345 | 3 |
| CI | 72 | 2871074 | -2 |
| PLD | 35 | 433481 | -5 |
| CAT | 39 | 2667687 | 5 |
| D | 33 | 366229 | -1 |
| Average | 42.1 | 1660331 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.1 hedge funds with bullish positions and the average amount invested in these stocks was $1660 million. That figure was $6759 million in ZM’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 20 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 57.8. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on ZM as the stock returned 28.2% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
