Okta, Inc. (OKTA): Hedge Funds Are Snapping Up

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Okta, Inc. (NASDAQ:OKTA).

Okta, Inc. (NASDAQ:OKTA) has seen an increase in enthusiasm from smart money lately. Okta, Inc. (NASDAQ:OKTA) was in 57 hedge funds’ portfolios at the end of June. The all time high for this statistic is 61. Our calculations also showed that OKTA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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. With all of this in mind let’s take a glance at the fresh hedge fund action encompassing Okta, Inc. (NASDAQ:OKTA).

Do Hedge Funds Think OKTA Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OKTA over the last 24 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 Okta, Inc. (NASDAQ:OKTA) was held by SCGE Management, which reported holding $437.2 million worth of stock at the end of June. It was followed by Whale Rock Capital Management with a $228.7 million position. Other investors bullish on the company included Arrowstreet Capital, Zevenbergen Capital Investments, and Steadfast Capital Management. In terms of the portfolio weights assigned to each position SQN Investors allocated the biggest weight to Okta, Inc. (NASDAQ:OKTA), around 6.04% of its 13F portfolio. Stony Point Capital is also relatively very bullish on the stock, earmarking 4.58 percent of its 13F equity portfolio to OKTA.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, initiated the most outsized position in Okta, Inc. (NASDAQ:OKTA). Whale Rock Capital Management had $228.7 million invested in the company at the end of the quarter. Catherine D. Wood’s ARK Investment Management also made a $89.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Glen Kacher’s Light Street Capital, Suraj Parkash Chopra’s Force Hill Capital Management, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Let’s now review hedge fund activity in other stocks similar to Okta, Inc. (NASDAQ:OKTA). We will take a look at International Flavors & Fragrances Inc (NYSE:IFF), General Mills, Inc. (NYSE:GIS), Peloton Interactive, Inc. (NASDAQ:PTON), The Trade Desk, Inc. (NASDAQ:TTD), Motorola Solutions Inc (NYSE:MSI), Barrick Gold Corporation (NYSE:GOLD), and Cognizant Technology Solutions Corp (NASDAQ:CTSH). This group of stocks’ market valuations are similar to OKTA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.7 hedge funds with bullish positions and the average amount invested in these stocks was $2368 million. That figure was $2091 million in OKTA’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand The Trade Desk, Inc. (NASDAQ:TTD) is the least popular one with only 25 bullish hedge fund positions. Okta, Inc. (NASDAQ:OKTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OKTA is 76.1. 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 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 25.7% in 2021 through September 27th and beat the market again by 6.2 percentage points. Unfortunately OKTA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on OKTA were disappointed as the stock returned -1.3% since the end of June (through 9/27) 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 many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.