Hedge Funds Have Never Been This Bullish On Zscaler, Inc. (ZS)

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Zscaler, Inc. (NASDAQ:ZS).

Is Zscaler, Inc. (NASDAQ:ZS) a superb investment now? Hedge funds were taking an optimistic view. The number of long hedge fund positions increased by 4 recently. Zscaler, Inc. (NASDAQ:ZS) was in 38 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 34 hedge funds in our database with ZS holdings at the end of March.

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ray Dalio of Bridgewater Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. 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 homepage. With all of this in mind we’re going to analyze the key hedge fund action surrounding Zscaler, Inc. (NASDAQ:ZS).

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

At Q2’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZS over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Zscaler, Inc. (NASDAQ:ZS) was held by 0, which reported holding $318.2 million worth of stock at the end of June. It was followed by Two Sigma Advisors with a $250.6 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to Zscaler, Inc. (NASDAQ:ZS), around 7.07% of its 13F portfolio. Mark Asset Management is also relatively very bullish on the stock, designating 2.95 percent of its 13F equity portfolio to ZS.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Zscaler, Inc. (NASDAQ:ZS). Holocene Advisors had $61 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $27.8 million position during the quarter. The other funds with new positions in the stock are Charles Montanaro’s Montanaro Asset Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Ray Dalio’s Bridgewater Associates.

Let’s go over hedge fund activity in other stocks similar to Zscaler, Inc. (NASDAQ:ZS). We will take a look at McKesson Corporation (NYSE:MCK), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), ViacomCBS Inc. (NASDAQ:VIAC), Occidental Petroleum Corporation (NYSE:OXY), Equifax Inc. (NYSE:EFX), AvalonBay Communities Inc (NYSE:AVB), and Arthur J. Gallagher & Co. (NYSE:AJG). All of these stocks’ market caps are closest to ZS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 47 hedge funds with bullish positions and the average amount invested in these stocks was $1784 million. That figure was $1103 million in ZS’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 26 bullish hedge fund positions. Zscaler, Inc. (NASDAQ:ZS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ZS is 52.3. 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 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. A small number of hedge funds were also right about betting on ZS as the stock returned 23.9% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.

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