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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in DocuSign, Inc. (NASDAQ:DOCU)? The smart money sentiment can provide an answer to this question.
Is DOCU a good stock to buy now? DocuSign, Inc. (NASDAQ:DOCU) investors should be aware of an increase in activity from the world's largest hedge funds recently. DocuSign, Inc. (NASDAQ:DOCU) was in 62 hedge funds' portfolios at the end of September. The all time high for this statistics is 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 57 hedge funds in our database with DOCU holdings at the end of June. Our calculations also showed that DOCU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. Now let's take a look at the latest hedge fund action encompassing DocuSign, Inc. (NASDAQ:DOCU).
What have hedge funds been doing with DocuSign, Inc. (NASDAQ:DOCU)?
At the end of the third quarter, a total of 62 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DOCU over the last 21 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.
The largest stake in DocuSign, Inc. (NASDAQ:DOCU) was held by Lone Pine Capital, which reported holding $890.1 million worth of stock at the end of September. It was followed by Melvin Capital Management with a $431.3 million position. Other investors bullish on the company included Arrowstreet Capital, Matrix Capital Management, and Coatue Management. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to DocuSign, Inc. (NASDAQ:DOCU), around 7.75% of its 13F portfolio. Cowbird Capital is also relatively very bullish on the stock, dishing out 4.95 percent of its 13F equity portfolio to DOCU.
As aggregate interest increased, some big names were leading the bulls' herd. Lone Pine Capital, assembled the most valuable position in DocuSign, Inc. (NASDAQ:DOCU). Lone Pine Capital had $890.1 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $82.3 million position during the quarter. The following funds were also among the new DOCU investors: Glen Kacher's Light Street Capital, John Overdeck and David Siegel's Two Sigma Advisors, and Daryl Smith's Kayak Investment Partners.
Let's check out hedge fund activity in other stocks similar to DocuSign, Inc. (NASDAQ:DOCU). These stocks are General Dynamics Corporation (NYSE:GD), Thomson Reuters Corporation (NYSE:TRI), TC Energy Corporation (NYSE:TRP), DexCom, Inc. (NASDAQ:DXCM), Emerson Electric Co. (NYSE:EMR), Public Storage (NYSE:PSA), and Itau Unibanco Holding SA (NYSE:ITUB). All of these stocks' market caps are similar to DOCU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GD,37,5036732,-5 TRI,19,315477,-6 TRP,16,84405,-5 DXCM,58,1516977,3 EMR,36,467606,0 PSA,17,818499,-9 ITUB,16,236336,-4 Average,28.4,1210862,-3.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $1211 million. That figure was $3560 million in DOCU's case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks DocuSign, Inc. (NASDAQ:DOCU) is more popular among hedge funds. Our overall hedge fund sentiment score for DOCU 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately DOCU wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DOCU were disappointed as the stock returned 1.1% since the end of the third quarter (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.