In this article we are going to use hedge fund sentiment as a tool and determine whether Zoom Video Communications, Inc. (NASDAQ:ZM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is ZM stock a buy or sell? Zoom Video Communications, Inc. (NASDAQ:ZM) has experienced an increase in support from the world’s most elite money managers lately. Zoom Video Communications, Inc. (NASDAQ:ZM) was in 59 hedge funds’ portfolios at the end of December. The all time high for this statistic is 56. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Lei Zhang of Hillhouse Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article). Now we’re going to take a glance at the fresh hedge fund action surrounding Zoom Video Communications, Inc. (NASDAQ:ZM).
Do Hedge Funds Think ZM Is A Good Stock To Buy Now?
At Q4’s end, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in ZM a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Hillhouse Capital Management was the largest shareholder of Zoom Video Communications, Inc. (NASDAQ:ZM), with a stake worth $1005.6 million reported as of the end of December. Trailing Hillhouse Capital Management was Coatue Management, which amassed a stake valued at $848.5 million. Renaissance Technologies, Tiger Global Management LLC, and Two Sigma Advisors 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 Hillhouse Capital Management allocated the biggest weight to Zoom Video Communications, Inc. (NASDAQ:ZM), around 8% of its 13F portfolio. First Growth Capital Management is also relatively very bullish on the stock, setting aside 7.2 percent of its 13F equity portfolio to ZM.
There weren’t any hedge funds initiating brand new positions in the stock during the fourth quarter.
Let’s go over hedge fund activity in other stocks similar to Zoom Video Communications, Inc. (NASDAQ:ZM). These stocks are The Estee Lauder Companies Inc (NYSE:EL), Intuitive Surgical, Inc. (NASDAQ:ISRG), General Electric Company (NYSE:GE), Rio Tinto Group (NYSE:RIO), Diageo plc (NYSE:DEO), GlaxoSmithKline plc (NYSE:GSK), and Stryker Corporation (NYSE:SYK). This group of stocks’ market caps are similar to ZM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EL | 51 | 3593398 | 5 |
| ISRG | 49 | 1802145 | -1 |
| GE | 69 | 5684620 | 24 |
| RIO | 26 | 1711997 | 3 |
| DEO | 23 | 667041 | 4 |
| GSK | 30 | 1742036 | -1 |
| SYK | 44 | 3222907 | -4 |
| Average | 41.7 | 2632021 | 4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.7 hedge funds with bullish positions and the average amount invested in these stocks was $2632 million. That figure was $6002 million in ZM’s case. General Electric Company (NYSE:GE) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 23 bullish hedge fund positions. Zoom Video Communications, Inc. (NASDAQ:ZM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZM is 77.1. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market again by 0.8 percentage points. Unfortunately ZM wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZM were disappointed as the stock returned -3.3% since the end of December (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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
