Was The Smart Money Right About Zoom Video Communications, Inc. (ZM)?

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. Insider Monkey finished processing 873 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 30th, 2021. In this article we are going to take a look at smart money sentiment towards Zoom Video Communications, Inc. (NASDAQ:ZM).

Is Zoom Video Communications, Inc. (NASDAQ:ZM) a buy here? Hedge funds were betting on the stock. The number of bullish hedge fund bets inched up by 5 in recent months. Zoom Video Communications, Inc. (NASDAQ:ZM) was in 59 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 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 ZM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Alex Sacerdote of Whale Rock Capital Management

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. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding Zoom Video Communications, Inc. (NASDAQ:ZM).

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

Heading into the third quarter of 2021, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ZM over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, 0 held the most valuable stake in Zoom Video Communications, Inc. (NASDAQ:ZM), which was worth $1657.7 million at the end of the second quarter. On the second spot was ARK Investment Management which amassed $1419.9 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Coatue Management 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 Abdiel Capital Advisors allocated the biggest weight to Zoom Video Communications, Inc. (NASDAQ:ZM), around 7.64% of its 13F portfolio. KCL Capital is also relatively very bullish on the stock, designating 7 percent of its 13F equity portfolio to ZM.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Whale Rock Capital Management, managed by Alex Sacerdote, assembled the most outsized position in Zoom Video Communications, Inc. (NASDAQ:ZM). Whale Rock Capital Management had $515.6 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also initiated a $202.4 million position during the quarter. The other funds with brand new ZM positions are Gavin Baker’s Atreides Management, Jonathan Soros’s JS Capital, and Donald Sussman’s Paloma Partners.

Let’s go over hedge fund activity in other stocks similar to Zoom Video Communications, Inc. (NASDAQ:ZM). These stocks are Diageo plc (NYSE:DEO), Square, Inc. (NYSE:SQ), Deere & Company (NYSE:DE), CVS Health Corporation (NYSE:CVS), Intuitive Surgical, Inc. (NASDAQ:ISRG), ServiceNow Inc (NYSE:NOW), and Snap Inc. (NYSE:SNAP). All of these stocks’ market caps are closest to ZM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 64 hedge funds with bullish positions and the average amount invested in these stocks was $4376 million. That figure was $8481 million in ZM’s case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 20 bullish hedge fund positions. Zoom Video Communications, Inc. (NASDAQ:ZM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ZM is 66.4. 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 negative signal and 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 surpassed the market again by 2.3 percentage points. Unfortunately ZM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ZM investors were disappointed as the stock returned -29% 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 most of these stocks already outperformed the market in 2021.

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