Zoom Video Communications (ZM): Hedge Funds Are Coming Back

In this article we will take a look at whether hedge funds think Zoom Video Communications, Inc. (NASDAQ:ZM) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Zoom Video Communications, Inc. (NASDAQ:ZM) undervalued? The smart money was turning bullish. The number of long hedge fund positions increased by 5 in recent months. Zoom Video Communications, Inc. (NASDAQ:ZM) was in 59 hedge funds’ portfolios at the end of June. 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). There were 54 hedge funds in our database with ZM holdings at the end of March.

To the average investor there are many signals shareholders employ to grade stocks. Two of the most useful signals are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the best fund managers can outperform the market by a healthy amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website .

Donald Sussman of Paloma Partners

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 we’re going to take a peek at the new hedge fund action surrounding Zoom Video Communications, Inc. (NASDAQ:ZM).

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

At second quarter’s end, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. By comparison, 48 hedge funds held shares or bullish call options in ZM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, 0 was the largest shareholder of Zoom Video Communications, Inc. (NASDAQ:ZM), with a stake worth $1657.7 million reported as of the end of June. Trailing Tiger Global Management LLC was ARK Investment Management, which amassed a stake valued at $1419.9 million. 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, earmarking 7 percent of its 13F equity portfolio to ZM.

Now, key hedge funds have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, established the largest 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 following funds were also among the new ZM investors: Gavin Baker’s Atreides Management, Jonathan Soros’s JS Capital, and Donald Sussman’s Paloma Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Zoom Video Communications, Inc. (NASDAQ:ZM) but similarly valued. We will take a look at 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 resemble 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 25.7% in 2021 through September 27th and surpassed the market again by 6.2 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 -29.5% 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 most of these stocks already outperformed the market in 2021.

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