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Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Slack Technologies Inc (NYSE:WORK) changed recently.
Is Slack Technologies Inc (NYSE:WORK) a buy, sell, or hold? Hedge funds are becoming hopeful. The number of bullish hedge fund positions moved up by 37 in recent months. Our calculations also showed that WORK isn't among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the recent hedge fund action regarding Slack Technologies Inc (NYSE:WORK).
How have hedgies been trading Slack Technologies Inc (NYSE:WORK)?
At Q2's end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 37 from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WORK over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Light Street Capital held the most valuable stake in Slack Technologies Inc (NYSE:WORK), which was worth $198.9 million at the end of the second quarter. On the second spot was Viking Global which amassed $170.2 million worth of shares. Moreover, OZ Management, 12 West Capital Management, and Melvin Capital Management were also bullish on Slack Technologies Inc (NYSE:WORK), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key money managers have jumped into Slack Technologies Inc (NYSE:WORK) headfirst. Light Street Capital, managed by Glen Kacher, established the most outsized position in Slack Technologies Inc (NYSE:WORK). Light Street Capital had $198.9 million invested in the company at the end of the quarter. Andreas Halvorsen's Viking Global also made a $170.2 million investment in the stock during the quarter. The other funds with brand new WORK positions are OZ Management, Joel Ramin's 12 West Capital Management, and Gabriel Plotkin's Melvin Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Slack Technologies Inc (NYSE:WORK) but similarly valued. These stocks are Omnicom Group Inc. (NYSE:OMC), Grifols SA (NASDAQ:GRFS), DISH Network Corp. (NASDAQ:DISH), and Fastenal Company (NASDAQ:FAST). This group of stocks' market caps resemble WORK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OMC,23,656047,3 GRFS,16,265646,2 DISH,32,1599504,5 FAST,29,1154953,8 Average,25,919038,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $919 million. That figure was $818 million in WORK's case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Slack Technologies Inc (NYSE:WORK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WORK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WORK were disappointed as the stock returned -36.7% during the third quarter 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
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