In this article we will check out the progression of hedge fund sentiment towards Cloudflare, Inc. (NYSE:NET) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is NET stock a buy or sell? Cloudflare, Inc. (NYSE:NET) investors should be aware of an increase in enthusiasm from smart money recently. Cloudflare, Inc. (NYSE:NET) was in 60 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 44 hedge funds in our database with NET positions at the end of the third quarter. Our calculations also showed that NET isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.
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Do Hedge Funds Think NET Is A Good Stock To Buy Now?
At the end of December, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NET over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cloudflare, Inc. (NYSE:NET) was held by Alkeon Capital Management, which reported holding $98 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $79 million position. Other investors bullish on the company included D E Shaw, Duquesne Capital, and Millennium Management. In terms of the portfolio weights assigned to each position SW Investment Management allocated the biggest weight to Cloudflare, Inc. (NYSE:NET), around 19.3% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, setting aside 8.69 percent of its 13F equity portfolio to NET.
As aggregate interest increased, key money managers were breaking ground themselves. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, initiated the biggest position in Cloudflare, Inc. (NYSE:NET). Alkeon Capital Management had $98 million invested in the company at the end of the quarter. Michael Pausic’s Foxhaven Asset Management also initiated a $57.4 million position during the quarter. The other funds with new positions in the stock are Catherine D. Wood’s ARK Investment Management, Alex Sacerdote’s Whale Rock Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cloudflare, Inc. (NYSE:NET) but similarly valued. We will take a look at PT Telekomunikasi Indonesia (NYSE:TLK), Lennar Corporation (NYSE:LEN), Valero Energy Corporation (NYSE:VLO), KKR & Co Inc. (NYSE:KKR), ViacomCBS Inc. (NASDAQ:VIAC), Ameriprise Financial, Inc. (NYSE:AMP), and Old Dominion Freight Line (NASDAQ:ODFL). This group of stocks’ market values match NET’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TLK | 4 | 173765 | -4 |
| LEN | 52 | 1529604 | -8 |
| VLO | 38 | 409945 | 0 |
| KKR | 54 | 4136875 | 4 |
| VIAC | 44 | 919129 | 0 |
| AMP | 34 | 642947 | 5 |
| ODFL | 50 | 891260 | 3 |
| Average | 39.4 | 1243361 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.4 hedge funds with bullish positions and the average amount invested in these stocks was $1243 million. That figure was $1182 million in NET’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Cloudflare, Inc. (NYSE:NET) is more popular among hedge funds. Our overall hedge fund sentiment score for NET is 90. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Unfortunately NET wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on NET were disappointed as the stock returned -5.7% since the end of the fourth quarter (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
