Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CS Disco Inc. (NYSE:LAW).
Is CS Disco Inc. (LAW) a good stock to buy now? Investors who are in the know were getting more bullish. The number of bullish hedge fund bets inched up by 22 in recent months. CS Disco Inc. (NYSE:LAW) was in 22 hedge funds’ portfolios at the end of September. Our calculations also showed that LAW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now let’s analyze the latest hedge fund action encompassing CS Disco Inc. (NYSE:LAW).
Alex Sacerdote of Whale Rock Capital Management
Do Hedge Funds Think LAW Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22 from the previous quarter. The graph below displays the number of hedge funds with bullish position in LAW over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Whale Rock Capital Management was the largest shareholder of CS Disco Inc. (NYSE:LAW) , with a stake worth $17.1 million reported as of the end of September. Trailing Whale Rock Capital Management was Islet Management, which amassed a stake valued at $12 million. Tudor Investment Corp, Driehaus Capital, and Alyeska Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pinz Capital allocated the biggest weight to CS Disco Inc. (NYSE:LAW) , around 1.17% of its 13F portfolio. Alight Capital is also relatively very bullish on the stock, dishing out 0.63 percent of its 13F equity portfolio to LAW.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, assembled the biggest position in CS Disco Inc. (NYSE:LAW) . Whale Rock Capital Management had $17.1 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also initiated a $12 million position during the quarter. The other funds with brand new LAW positions are Paul Tudor Jones’s Tudor Investment Corp, Richard Driehaus’s Driehaus Capital, and Anand Parekh’s Alyeska Investment Group.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CS Disco Inc. (NYSE:LAW) but similarly valued. We will take a look at Heska Corp (NASDAQ:HSKA), CNX Resources Corporation (NYSE:CNX), Green Dot Corporation (NYSE:GDOT), Domtar Corporation (NYSE:UFS), Enovix Corporation (NASDAQ:ENVX), First Bancorp (NYSE:FBP), and Cadence Bank (NYSE:CADE). This group of stocks’ market valuations match LAW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HSKA | 22 | 358706 | 2 |
| CNX | 34 | 525941 | 4 |
| GDOT | 23 | 575860 | 1 |
| UFS | 21 | 355182 | -8 |
| ENVX | 23 | 661835 | 23 |
| FBP | 26 | 253717 | 1 |
| CADE | 24 | 113674 | -1 |
| Average | 24.7 | 406416 | 3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $406 million. That figure was $101 million in LAW’s case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand Domtar Corporation (NYSE:UFS) is the least popular one with only 21 bullish hedge fund positions. CS Disco Inc. (NYSE:LAW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LAW is 16.2. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately LAW wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LAW investors were disappointed as the stock returned -25.4% since the end of September (through 12/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.
