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 Elastic N.V. (NYSE:ESTC) and determine whether hedge funds had an edge regarding this stock.
Is Elastic N.V. (NYSE:ESTC) the right investment to pursue these days? The best stock pickers were buying. The number of bullish hedge fund positions advanced by 4 recently. Elastic N.V. (NYSE:ESTC) was in 59 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic was previously 55. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ESTC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 55 hedge funds in our database with ESTC positions at the end of the second quarter.
Alex Sacerdote of Whale Rock Capital Management
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. Keeping this in mind let’s take a peek at the new hedge fund action regarding Elastic N.V. (NYSE:ESTC).
Do Hedge Funds Think ESTC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ESTC over the last 25 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Elastic N.V. (NYSE:ESTC) was held by Sylebra Capital Management, which reported holding $675.8 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $598.9 million position. Other investors bullish on the company included Whale Rock Capital Management, Marcho Partners, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Sylebra Capital Management allocated the biggest weight to Elastic N.V. (NYSE:ESTC), around 15.21% of its 13F portfolio. Greenhaven Road Investment Management is also relatively very bullish on the stock, designating 11.77 percent of its 13F equity portfolio to ESTC.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Honeycomb Asset Management, managed by David Fiszel, established the biggest position in Elastic N.V. (NYSE:ESTC). Honeycomb Asset Management had $46.9 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also initiated a $40.4 million position during the quarter. The other funds with new positions in the stock are Peter S. Park’s Park West Asset Management, Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital, and Joseph Samuels’s Islet Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Elastic N.V. (NYSE:ESTC) but similarly valued. These stocks are Leidos Holdings Inc (NYSE:LDOS), The Mosaic Company (NYSE:MOS), Vail Resorts, Inc. (NYSE:MTN), Suzano S.A. (NYSE:SUZ), GameStop Corp. (NYSE:GME), Howmet Aerospace Inc. (NYSE:HWM), and Futu Holdings Limited (NASDAQ:FUTU). This group of stocks’ market valuations are similar to ESTC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LDOS | 14 | 206379 | -8 |
| MOS | 40 | 912653 | -3 |
| MTN | 40 | 644916 | 0 |
| SUZ | 6 | 47280 | 2 |
| GME | 9 | 80933 | -9 |
| HWM | 44 | 3495496 | -3 |
| FUTU | 23 | 664044 | -8 |
| Average | 25.1 | 864529 | -4.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $865 million. That figure was $2986 million in ESTC’s case. Howmet Aerospace Inc. (NYSE:HWM) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Elastic N.V. (NYSE:ESTC) is more popular among hedge funds. Our overall hedge fund sentiment score for ESTC is 89. 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. 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 still beat the market by 3.6 percentage points. Unfortunately, ESTC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ESTC were disappointed as the stock returned -37.4% since the end of the third quarter (through 1/31) 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 all of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
