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Hedge Funds Are Selling Cloudflare, Inc. (NET)

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  • NET

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Cloudflare, Inc. (NYSE:NET).

Is Cloudflare, Inc. (NYSE:NET) going to take off soon? Prominent investors were getting less optimistic. The number of long hedge fund bets dropped by 2 in recent months. Cloudflare, Inc. (NYSE:NET) was in 43 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 60. Our calculations also showed that NET isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

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, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI 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 recent hedge fund action surrounding Cloudflare, Inc. (NYSE:NET).

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

Heading into the third quarter of 2021, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NET over the last 24 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.

More specifically, Citadel Investment Group was the largest shareholder of Cloudflare, Inc. (NYSE:NET), with a stake worth $116.9 million reported as of the end of June. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $78.5 million. PEAK6 Capital Management, ARK Investment Management, 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 SW Investment Management allocated the biggest weight to Cloudflare, Inc. (NYSE:NET), around 22.27% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, designating 9.96 percent of its 13F equity portfolio to NET.

Due to the fact that Cloudflare, Inc. (NYSE:NET) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds who were dropping their positions entirely by the end of the second quarter. Interestingly, Panayotis Takis Sparaggis's Alkeon Capital Management sold off the biggest investment of all the hedgies watched by Insider Monkey, worth about $117.6 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund dropped about $25.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cloudflare, Inc. (NYSE:NET) but similarly valued. We will take a look at Liberty Broadband Corp (NASDAQ:LBRDK), STMicroelectronics N.V. (NYSE:STM), CoStar Group Inc (NASDAQ:CSGP), Corteva, Inc. (NYSE:CTVA), D.R. Horton, Inc. (NYSE:DHI), The Williams Companies, Inc. (NYSE:WMB), and Mettler-Toledo International Inc. (NYSE:MTD). All of these stocks' market caps are closest to NET's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LBRDK,63,7386186,-7 STM,13,159058,-2 CSGP,49,2816593,6 CTVA,34,1283913,-1 DHI,45,1886955,-5 WMB,39,551010,5 MTD,35,1267774,8 Average,39.7,2193070,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.7 hedge funds with bullish positions and the average amount invested in these stocks was $2193 million. That figure was $863 million in NET's case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 13 bullish hedge fund positions. Cloudflare, Inc. (NYSE:NET) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NET is 54.5. 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on NET as the stock returned 8.6% since the end of Q2 (through 10/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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