Was The Smart Money Right About Okta, Inc. (OKTA)?

In this article we will check out the progression of hedge fund sentiment towards Okta, Inc. (NASDAQ:OKTA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Okta, Inc. (NASDAQ:OKTA) investors should pay attention to an increase in enthusiasm from smart money of late. 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.

Glen Kacher of Light Street Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium 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. Keeping this in mind let’s analyze the fresh hedge fund action encompassing Okta, Inc. (NASDAQ:OKTA).

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

Heading into the third quarter of 2021, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards 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.

Of the funds tracked by Insider Monkey, Christopher Lyle’s SCGE Management has the biggest position in Okta, Inc. (NASDAQ:OKTA), worth close to $437.2 million, comprising 4.1% of its total 13F portfolio. The second most bullish fund manager is Alex Sacerdote of Whale Rock Capital Management, with a $228.7 million position; 1.5% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Nancy Zevenbergen’s Zevenbergen Capital Investments and Robert Pitts’s 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, dishing out 4.58 percent of its 13F equity portfolio to OKTA.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Whale Rock Capital Management, managed by Alex Sacerdote, created the biggest 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 initiated a $89.5 million position during the quarter. The following funds were also among the new OKTA investors: Glen Kacher’s Light Street Capital, Suraj Parkash Chopra’s Force Hill Capital Management, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Okta, Inc. (NASDAQ:OKTA) but similarly valued. 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 caps match OKTA’s market cap.

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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 26.3% in 2021 through October 29th and beat the market again by 2.3 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% since the end of June (through 10/29) 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.