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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding RingCentral Inc (NYSE:RNG).
RingCentral Inc (NYSE:RNG) was in 47 hedge funds' portfolios at the end of June. The all time high for this statistic is 67. RNG investors should be aware of a decrease in enthusiasm from smart money lately. There were 51 hedge funds in our database with RNG positions at the end of the first quarter. Our calculations also showed that RNG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Ken Griffin of Citadel Investment Group
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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 let's check out the fresh hedge fund action encompassing RingCentral Inc (NYSE:RNG).
Do Hedge Funds Think RNG Is A Good Stock To Buy Now?
At second quarter's end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2020. By comparison, 62 hedge funds held shares or bullish call options in RNG a year ago. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in RingCentral Inc (NYSE:RNG) was held by Tiger Global Management LLC, which reported holding $1144.9 million worth of stock at the end of June. It was followed by Alkeon Capital Management with a $1052.3 million position. Other investors bullish on the company included SCGE Management, Alkeon Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Hunt Lane Capital allocated the biggest weight to RingCentral Inc (NYSE:RNG), around 6.69% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, designating 5.7 percent of its 13F equity portfolio to RNG.
Due to the fact that RingCentral Inc (NYSE:RNG) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies that slashed their full holdings in the second quarter. It's worth mentioning that Amish Mehta's SQN Investors dropped the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $102.2 million in stock. Peter S. Park's fund, Park West Asset Management, also cut its stock, about $63.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds in the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as RingCentral Inc (NYSE:RNG) but similarly valued. These stocks are Carnival Corporation & plc (NYSE:CUK), Futu Holdings Limited (NASDAQ:FUTU), Tencent Music Entertainment Group (NYSE:TME), Etsy Inc (NASDAQ:ETSY), Generac Holdings Inc. (NYSE:GNRC), Slack Technologies Inc (NYSE:WORK), and Hormel Foods Corporation (NYSE:HRL). All of these stocks' market caps resemble RNG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CUK,10,236979,6 FUTU,31,1190137,5 TME,35,570093,-28 ETSY,47,1731703,-6 GNRC,38,594282,2 WORK,61,5328202,1 HRL,24,562433,-2 Average,35.1,1459118,-3.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.1 hedge funds with bullish positions and the average amount invested in these stocks was $1459 million. That figure was $3285 million in RNG's case. Slack Technologies Inc (NYSE:WORK) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 10 bullish hedge fund positions. RingCentral Inc (NYSE:RNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RNG is 58.3. 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 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately RNG wasn't nearly as popular as these 5 stocks and hedge funds that were betting on RNG were disappointed as the stock returned -21.3% since the end of June (through 10/1) 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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.