Hedge Funds Were Dumping Okta, Inc. (OKTA) Before Coronavirus
Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Okta, Inc. (NASDAQ:OKTA) makes for a good investment right now.
Is Okta, Inc. (NASDAQ:OKTA) an exceptional investment today? Money managers are taking a bearish view. The number of long hedge fund bets dropped by 13 lately. Our calculations also showed that OKTA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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. 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 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30602" align="aligncenter" width="400"]
Philippe Laffont of Coatue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's analyze the key hedge fund action surrounding Okta, Inc. (NASDAQ:OKTA).
How are hedge funds trading Okta, Inc. (NASDAQ:OKTA)?
Heading into the first quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OKTA over the last 18 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Whale Rock Capital Management was the largest shareholder of Okta, Inc. (NASDAQ:OKTA), with a stake worth $215.6 million reported as of the end of September. Trailing Whale Rock Capital Management was Alkeon Capital Management, which amassed a stake valued at $161.2 million. SCGE Management, Zevenbergen Capital Investments, and Coatue Management 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 Cota Capital allocated the biggest weight to Okta, Inc. (NASDAQ:OKTA), around 6.3% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, earmarking 5.4 percent of its 13F equity portfolio to OKTA.
Since Okta, Inc. (NASDAQ:OKTA) has experienced falling interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedgies that elected to cut their positions entirely by the end of the third quarter. Interestingly, Steve Cohen's Point72 Asset Management sold off the biggest investment of the 750 funds followed by Insider Monkey, valued at close to $89.9 million in stock. Brandon Haley's fund, Holocene Advisors, also said goodbye to its stock, about $55.8 million worth. These moves are interesting, as total hedge fund interest fell by 13 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to Okta, Inc. (NASDAQ:OKTA). We will take a look at Akamai Technologies, Inc. (NASDAQ:AKAM), Carvana Co. (NYSE:CVNA), Sun Communities Inc (NYSE:SUI), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO). This group of stocks' market caps resemble OKTA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AKAM,36,790927,5 CVNA,53,2726394,3 SUI,31,399362,13 TTWO,59,1105651,-1 Average,44.75,1255584,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $1256 million. That figure was $996 million in OKTA's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Sun Communities Inc (NYSE:SUI) is the least popular one with only 31 bullish hedge fund positions. Okta, Inc. (NASDAQ:OKTA) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on OKTA as the stock returned -16.7% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
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