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 Roku, Inc. (NASDAQ:ROKU).
Is Roku, Inc. (NASDAQ:ROKU) a healthy stock for your portfolio? The best stock pickers were turning bullish. The number of long hedge fund positions moved up by 1 lately. Roku, Inc. (NASDAQ:ROKU) was in 60 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 59. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ROKU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 59 hedge funds in our database with ROKU holdings at the end of September.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Philippe Laffont of Coatue Management
At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 take a glance at the recent hedge fund action regarding Roku, Inc. (NASDAQ:ROKU).
Do Hedge Funds Think ROKU Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in ROKU over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, ARK Investment Management held the most valuable stake in Roku, Inc. (NASDAQ:ROKU), which was worth $1785.2 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $301.8 million worth of shares. Renaissance Technologies, Millennium Management, and Ogborne Capital 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 Ogborne Capital allocated the biggest weight to Roku, Inc. (NASDAQ:ROKU), around 21.39% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, designating 6.73 percent of its 13F equity portfolio to ROKU.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Coatue Management, managed by Philippe Laffont, assembled the most valuable position in Roku, Inc. (NASDAQ:ROKU). Coatue Management had $48.5 million invested in the company at the end of the quarter. Kenneth Tropin’s Graham Capital Management also made a $41.5 million investment in the stock during the quarter. The following funds were also among the new ROKU investors: Ben Jacobs’s Anomaly Capital Management, Karim Abbadi and Edward McBride’s Centiva Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Roku, Inc. (NASDAQ:ROKU) but similarly valued. We will take a look at Align Technology, Inc. (NASDAQ:ALGN), Electronic Arts Inc. (NASDAQ:EA), National Grid plc (NYSE:NGG), Unity Software Inc. (NYSE:U), DocuSign, Inc. (NASDAQ:DOCU), Moderna, Inc. (NASDAQ:MRNA), and American Electric Power Company, Inc. (NYSE:AEP). All of these stocks’ market caps resemble ROKU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALGN | 50 | 2480630 | 3 |
| EA | 50 | 1050954 | -12 |
| NGG | 5 | 352676 | -1 |
| U | 32 | 11908726 | -3 |
| DOCU | 67 | 4232054 | 5 |
| MRNA | 41 | 1479400 | 9 |
| AEP | 32 | 331817 | 2 |
| Average | 39.6 | 3119465 | 0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.6 hedge funds with bullish positions and the average amount invested in these stocks was $3119 million. That figure was $3238 million in ROKU’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 5 bullish hedge fund positions. Roku, Inc. (NASDAQ:ROKU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ROKU is 80.4. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately ROKU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ROKU were disappointed as the stock returned 3.3% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.
