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Is Butterfly Network, Inc. (BFLY) A Good Stock To Buy?

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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 866 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. What do these smart investors think about Butterfly Network, Inc. (NYSE:BFLY)?

Is BFLY a good stock to buy now? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund bets advanced by 32 recently. Butterfly Network, Inc. (NYSE:BFLY) was in 32 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that BFLY isn't among the 30 most popular stocks among hedge funds (click for Q1 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. 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 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Cathie Wood ARK Investment Management
Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

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. Keeping this in mind we're going to review the key hedge fund action surrounding Butterfly Network, Inc. (NYSE:BFLY).

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

At Q1's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BFLY over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, ARK Investment Management was the largest shareholder of Butterfly Network, Inc. (NYSE:BFLY), with a stake worth $89 million reported as of the end of March. Trailing ARK Investment Management was Glenview Capital, which amassed a stake valued at $80.4 million. Partner Fund Management, Honeycomb Asset Management, and Millennium 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 Ionic Capital Management allocated the biggest weight to Butterfly Network, Inc. (NYSE:BFLY), around 1.36% of its 13F portfolio. Glenview Capital is also relatively very bullish on the stock, setting aside 1.36 percent of its 13F equity portfolio to BFLY.

With a general bullishness amongst the heavyweights, key money managers have jumped into Butterfly Network, Inc. (NYSE:BFLY) headfirst. ARK Investment Management, managed by Catherine D. Wood, established the biggest position in Butterfly Network, Inc. (NYSE:BFLY). ARK Investment Management had $89 million invested in the company at the end of the quarter. Larry Robbins's Glenview Capital also initiated a $80.4 million position during the quarter. The other funds with brand new BFLY positions are Christopher James's Partner Fund Management, David Fiszel's Honeycomb Asset Management, and Israel Englander's Millennium Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Butterfly Network, Inc. (NYSE:BFLY) but similarly valued. We will take a look at Summit Materials Inc (NYSE:SUM), Camping World Holdings, Inc. (NYSE:CWH), Onto Innovation Inc. (NYSE:ONTO), Terex Corporation (NYSE:TEX), Brookfield Business Partners L.P. (NYSE:BBU), Danimer Scientific, Inc. (NYSE:DNMR), and Werner Enterprises, Inc. (NASDAQ:WERN). This group of stocks' market values resemble BFLY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SUM,32,198758,1 CWH,24,325789,-3 ONTO,18,297070,-1 TEX,31,501779,8 BBU,3,6237,0 DNMR,30,533383,12 WERN,21,213603,-3 Average,22.7,296660,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $297 million. That figure was $300 million in BFLY's case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 3 bullish hedge fund positions. Butterfly Network, Inc. (NYSE:BFLY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BFLY is 90. 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 22.8% in 2021 through July 2nd and beat the market again by 6 percentage points. Unfortunately BFLY wasn't nearly as popular as these 5 stocks and hedge funds that were betting on BFLY were disappointed as the stock returned -24.2% since the end of March (through 7/2) 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.