Should I Buy DigitalOcean Holdings, Inc. (DOCN)?
With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter of 2021. One of these stocks was DigitalOcean Holdings, Inc. (NYSE:DOCN).
Is DigitalOcean Holdings, Inc. (NYSE:DOCN) undervalued? The best stock pickers were becoming more confident. The number of bullish hedge fund positions advanced by 22 recently. DigitalOcean Holdings, Inc. (NYSE:DOCN) was in 22 hedge funds' portfolios at the end of March. Our calculations also showed that DOCN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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 fresh hedge fund action surrounding DigitalOcean Holdings, Inc. (NYSE:DOCN).
Do Hedge Funds Think DOCN Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22 from the fourth quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in DOCN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Chase Coleman's Tiger Global Management LLC has the biggest position in DigitalOcean Holdings, Inc. (NYSE:DOCN), worth close to $71.6 million, comprising 0.2% of its total 13F portfolio. The second largest stake is held by Altimeter Capital Management, managed by Brad Gerstner, which holds a $27.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Paul Tudor Jones's Tudor Investment Corp, Stuart J. Zimmer's Zimmer Partners and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Tudor Investment Corp allocated the biggest weight to DigitalOcean Holdings, Inc. (NYSE:DOCN), around 0.34% of its 13F portfolio. Altimeter Capital Management is also relatively very bullish on the stock, dishing out 0.2 percent of its 13F equity portfolio to DOCN.
Consequently, key money managers were breaking ground themselves. Tiger Global Management LLC, managed by Chase Coleman, initiated the most valuable position in DigitalOcean Holdings, Inc. (NYSE:DOCN). Tiger Global Management LLC had $71.6 million invested in the company at the end of the quarter. Brad Gerstner's Altimeter Capital Management also initiated a $27.4 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Stuart J. Zimmer's Zimmer Partners, and Ken Griffin's Citadel Investment Group.
Let's go over hedge fund activity in other stocks similar to DigitalOcean Holdings, Inc. (NYSE:DOCN). These stocks are Diversey Holdings, Ltd. (NASDAQ:DSEY), Schneider National, Inc. (NYSE:SNDR), Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), Sunnova Energy International Inc. (NYSE:NOVA), Ormat Technologies, Inc. (NYSE:ORA), Everbridge, Inc. (NASDAQ:EVBG), and Navistar International Corp (NYSE:NAV). This group of stocks' market valuations are similar to DOCN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DSEY,21,284464,21 SNDR,19,127648,-1 BHVN,33,359789,-6 NOVA,26,327923,-6 ORA,17,251963,1 EVBG,49,1083099,13 NAV,21,2077934,-8 Average,26.6,644689,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $645 million. That figure was $198 million in DOCN's case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 17 bullish hedge fund positions. DigitalOcean Holdings, Inc. (NYSE:DOCN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DOCN is 22.5. 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. 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 23.8% in 2021 through July 16th and beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on DOCN, though not to the same extent, as the stock returned 15.2% since the end of Q1 (through July 16th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.
