The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 887 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31st holdings, data that is available nowhere else. Should you consider Zscaler, Inc. (NASDAQ:ZS) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is ZS stock a buy or sell? Money managers were taking an optimistic view. The number of bullish hedge fund bets inched up by 9 in recent months. Zscaler, Inc. (NASDAQ:ZS) was in 35 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 26 hedge funds in our database with ZS positions at the end of the third quarter.
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 124 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.
Alex Sacerdote of Whale Rock Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. With all of this in mind let’s check out the recent hedge fund action surrounding Zscaler, Inc. (NASDAQ:ZS).
Do Hedge Funds Think ZS Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from the third quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in ZS a year ago. 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 Zscaler, Inc. (NASDAQ:ZS) was held by Whale Rock Capital Management, which reported holding $295.1 million worth of stock at the end of December. It was followed by D E Shaw with a $285.1 million position. Other investors bullish on the company included Two Sigma Advisors, Arrowstreet Capital, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to Zscaler, Inc. (NASDAQ:ZS), around 7.11% of its 13F portfolio. 1623 Capital is also relatively very bullish on the stock, earmarking 4.04 percent of its 13F equity portfolio to ZS.
There weren’t any hedge funds initiating brand new positions in the stock during the fourth quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Zscaler, Inc. (NASDAQ:ZS). We will take a look at Ecopetrol S.A. (NYSE:EC), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Paycom Software Inc (NYSE:PAYC), Sun Life Financial Inc. (NYSE:SLF), Li Auto Inc. (NASDAQ:LI), StoneCo Ltd. (NASDAQ:STNE), and Best Buy Co., Inc. (NYSE:BBY). This group of stocks’ market caps are closest to ZS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EC | 7 | 102902 | 0 |
| IBKR | 28 | 1108907 | 0 |
| PAYC | 35 | 748935 | -3 |
| SLF | 19 | 87210 | 6 |
| LI | 31 | 497858 | 5 |
| STNE | 47 | 3628999 | 9 |
| BBY | 38 | 975177 | -2 |
| Average | 29.3 | 1021427 | 2.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $1021 million. That figure was $1208 million in ZS’s case. StoneCo Ltd. (NASDAQ:STNE) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 7 bullish hedge fund positions. Zscaler, Inc. (NASDAQ:ZS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZS is 75. 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 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately ZS wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZS were disappointed as the stock returned -12% since the end of December (through 4/1) 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.
