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Did Hedge Funds Get Upwork Inc. (UPWK) Right?

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Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren't certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Upwork Inc. (NASDAQ:UPWK) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Upwork Inc. (NASDAQ:UPWK) was in 35 hedge funds' portfolios at the end of September. The all time high for this statistic was previously 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. UPWK has seen an increase in hedge fund sentiment recently. There were 26 hedge funds in our database with UPWK positions at the end of the second quarter. Our calculations also showed that UPWK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind let's take a look at the recent hedge fund action encompassing Upwork Inc. (NASDAQ:UPWK).

Ken Griffin CITADEL INVESTMENT GROUP
Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

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

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in UPWK a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, SRS Investment Management held the most valuable stake in Upwork Inc. (NASDAQ:UPWK), which was worth $75.1 million at the end of the third quarter. On the second spot was XN Exponent Advisors which amassed $74.4 million worth of shares. Ancient Art (Teton Capital), Renaissance Technologies, and Citadel Investment Group 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 IvyRock Asset Management allocated the biggest weight to Upwork Inc. (NASDAQ:UPWK), around 15.26% of its 13F portfolio. Kent Lake Capital is also relatively very bullish on the stock, designating 8.04 percent of its 13F equity portfolio to UPWK.

As aggregate interest increased, key money managers have jumped into Upwork Inc. (NASDAQ:UPWK) headfirst. XN Exponent Advisors, managed by Gaurav Kapadia, created the largest position in Upwork Inc. (NASDAQ:UPWK). XN Exponent Advisors had $74.4 million invested in the company at the end of the quarter. John Osterweis's Osterweis Capital Management also initiated a $5.1 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Jinghua Yan's TwinBeech Capital, and Jack Woodruff's Candlestick Capital Management.

Let's now review hedge fund activity in other stocks similar to Upwork Inc. (NASDAQ:UPWK). We will take a look at New Fortress Energy Inc. (NASDAQ:NFE), Reynolds Consumer Products Inc. (NASDAQ:REYN), Acadia Healthcare Company Inc (NASDAQ:ACHC), MP Materials Corp. (NYSE:MP), Allakos Inc. (NASDAQ:ALLK), Ambarella Inc (NASDAQ:AMBA), and MSA Safety Incorporated (NYSE:MSA). This group of stocks' market caps are closest to UPWK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NFE,10,37286,1 REYN,12,97844,-2 ACHC,29,572319,-3 MP,20,2180334,0 ALLK,15,378212,3 AMBA,37,582744,0 MSA,14,35354,1 Average,19.6,554870,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $555 million. That figure was $418 million in UPWK's case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand New Fortress Energy Inc. (NASDAQ:NFE) is the least popular one with only 10 bullish hedge fund positions. Upwork Inc. (NASDAQ:UPWK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UPWK is 86.3. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, UPWK wasn't nearly as popular as these 5 stocks and hedge funds that were betting on UPWK were disappointed as the stock returned -39.6% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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