How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding JFrog Ltd. (NASDAQ:FROG).
Is FROG a good stock to buy now? Investors who are in the know were in an optimistic mood. The number of long hedge fund bets increased by 22 lately. JFrog Ltd. (NASDAQ:FROG) was in 22 hedge funds’ portfolios at the end of September. Our calculations also showed that FROG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now we’re going to review the key hedge fund action surrounding JFrog Ltd. (NASDAQ:FROG).
Do Hedge Funds Think FROG 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 held long positions in this stock, a change of 22 from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in FROG a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in JFrog Ltd. (NASDAQ:FROG), which was worth $110 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $84.7 million worth of shares. Light Street Capital, Viking Global, and Adage Capital Management 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 3G Capital allocated the biggest weight to JFrog Ltd. (NASDAQ:FROG), around 2.43% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, dishing out 0.86 percent of its 13F equity portfolio to FROG.
With a general bullishness amongst the heavyweights, key money managers have jumped into JFrog Ltd. (NASDAQ:FROG) headfirst. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, created the largest position in JFrog Ltd. (NASDAQ:FROG). Alkeon Capital Management had $110 million invested in the company at the end of the quarter. Chase Coleman’s Tiger Global Management LLC also initiated a $84.7 million position during the quarter. The other funds with brand new FROG positions are Glen Kacher’s Light Street Capital, Andreas Halvorsen’s Viking Global, and Phill Gross and Robert Atchinson’s Adage Capital Management.
Let’s also examine hedge fund activity in other stocks similar to JFrog Ltd. (NASDAQ:FROG). We will take a look at NRG Energy Inc (NYSE:NRG), RH (NYSE:RH), Sibanye Stillwater Limited (NYSE:SBSW), Alleghany Corporation (NYSE:Y), Service Corporation International (NYSE:SCI), Owens Corning (NYSE:OC), and SEI Investments Company (NASDAQ:SEIC). This group of stocks’ market values resemble FROG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NRG | 32 | 1086627 | -4 |
| RH | 40 | 1623869 | 0 |
| SBSW | 22 | 208952 | 5 |
| Y | 29 | 306105 | -2 |
| SCI | 30 | 727982 | 3 |
| OC | 43 | 682518 | 6 |
| SEIC | 36 | 231552 | -1 |
| Average | 33.1 | 695372 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $695 million. That figure was $289 million in FROG’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Sibanye Stillwater Limited (NYSE:SBSW) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks JFrog Ltd. (NASDAQ:FROG) is even less popular than SBSW. Our overall hedge fund sentiment score for FROG is 10. 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. Hedge funds dodged a bullet by taking a bearish stance towards FROG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th but managed to beat the market again by 15.8 percentage points. Unfortunately FROG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FROG investors were disappointed as the stock returned -19.6% since the end of the third quarter (through 12/14) 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
