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Hedge Funds Are Selling Netflix, Inc. (NFLX)

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In this article we will analyze whether Netflix, Inc. (NASDAQ:NFLX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Netflix, Inc. (NASDAQ:NFLX) has seen a decrease in hedge fund interest lately. Netflix, Inc. (NASDAQ:NFLX) was in 110 hedge funds' portfolios at the end of March. The all time high for this statistic is 116. Our calculations also showed that NFLX ranked 15th among the 30 most popular stocks among hedge funds (click for Q1 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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Andreas Halvorsen
Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell 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. With all of this in mind we're going to take a gander at the key hedge fund action encompassing Netflix, Inc. (NASDAQ:NFLX).

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

At Q1's end, a total of 110 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NFLX over the last 23 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Griffin's Citadel Investment Group has the biggest call position in Netflix, Inc. (NASDAQ:NFLX), worth close to $2.1514 billion, corresponding to 0.6% of its total 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which holds a $1.9996 billion position; the fund has 1.4% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise Karthik Sarma's SRS Investment Management, David Goel and Paul Ferri's Matrix Capital Management and Lone Pine Capital. In terms of the portfolio weights assigned to each position Ariose Capital allocated the biggest weight to Netflix, Inc. (NASDAQ:NFLX), around 27.15% of its 13F portfolio. SRS Investment Management is also relatively very bullish on the stock, earmarking 16.95 percent of its 13F equity portfolio to NFLX.

Because Netflix, Inc. (NASDAQ:NFLX) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedge funds that decided to sell off their entire stakes heading into Q2. At the top of the heap, John Overdeck and David Siegel's Two Sigma Advisors said goodbye to the largest position of the 750 funds watched by Insider Monkey, comprising about $249.4 million in stock. Aaron Cowen's fund, Suvretta Capital Management, also dumped its stock, about $207.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q2.

Let's check out hedge fund activity in other stocks similar to Netflix, Inc. (NASDAQ:NFLX). We will take a look at Adobe Inc. (NASDAQ:ADBE), The Coca-Cola Company (NYSE:KO), Cisco Systems, Inc. (NASDAQ:CSCO), Toyota Motor Corporation (NYSE:TM), AT&T Inc. (NYSE:T), Abbott Laboratories (NYSE:ABT), and NIKE, Inc. (NYSE:NKE). This group of stocks' market valuations resemble NFLX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADBE,107,12111692,-7 KO,61,24903946,-1 CSCO,59,5194074,-1 TM,18,824174,7 T,63,2701777,5 ABT,65,5136552,1 NKE,78,5176711,-4 Average,64.4,8006989,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 64.4 hedge funds with bullish positions and the average amount invested in these stocks was $8007 million. That figure was $14159 million in NFLX's case. Adobe Inc. (NASDAQ:ADBE) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Netflix, Inc. (NASDAQ:NFLX) is more popular among hedge funds. Our overall hedge fund sentiment score for NFLX is 91.4. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Unfortunately NFLX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on NFLX were disappointed as the stock returned -6.3% since the end of the first quarter (through 6/11) 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 most of these stocks already outperformed the market since 2019.

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

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