Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like 8×8, Inc. (NYSE:EGHT).
8×8, Inc. (NYSE:EGHT) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Nelnet, Inc. (NYSE:NNI), First Bancorp (NYSE:FBP), and Applied Industrial Technologies, Inc. (NYSE:AIT) to gather more data points. Our calculations also showed that EGHT isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the recent hedge fund action regarding 8×8, Inc. (NYSE:EGHT).
Hedge fund activity in 8×8, Inc. (NYSE:EGHT)
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EGHT over the last 16 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Point72 Asset Management held the most valuable stake in 8×8, Inc. (NYSE:EGHT), which was worth $115.1 million at the end of the second quarter. On the second spot was Tiger Global Management LLC which amassed $114 million worth of shares. Moreover, Sylebra Capital Management, Polar Capital, and SRS Investment Management were also bullish on 8×8, Inc. (NYSE:EGHT), allocating a large percentage of their portfolios to this stock.
Seeing as 8×8, Inc. (NYSE:EGHT) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few money managers that elected to cut their positions entirely heading into Q3. It’s worth mentioning that Israel Englander’s Millennium Management cut the largest investment of the 750 funds followed by Insider Monkey, valued at about $13.4 million in stock. Cliff Asness’s fund, AQR Capital Management, also said goodbye to its stock, about $3.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to 8×8, Inc. (NYSE:EGHT). We will take a look at Nelnet, Inc. (NYSE:NNI), First Bancorp (NYSE:FBP), Applied Industrial Technologies, Inc. (NYSE:AIT), and Canada Goose Holdings Inc. (NYSE:GOOS). This group of stocks’ market caps are closest to EGHT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NNI | 13 | 94103 | -2 |
| FBP | 23 | 214538 | 5 |
| AIT | 18 | 108981 | 1 |
| GOOS | 18 | 109012 | -9 |
| Average | 18 | 131659 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $477 million in EGHT’s case. First Bancorp (NYSE:FBP) is the most popular stock in this table. On the other hand Nelnet, Inc. (NYSE:NNI) is the least popular one with only 13 bullish hedge fund positions. 8×8, Inc. (NYSE:EGHT) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EGHT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EGHT were disappointed as the stock returned -14% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.