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With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Nutanix, Inc. (NASDAQ:NTNX).
Is NTNX stock a buy? Hedge fund interest in Nutanix, Inc. (NASDAQ:NTNX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that NTNX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Prosperity Bancshares, Inc. (NYSE:PB), Kohl's Corporation (NYSE:KSS), and Rexford Industrial Realty Inc (NYSE:REXR) to gather more data points.
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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
David Blood of Generation Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Keeping this in mind let's view the recent hedge fund action regarding Nutanix, Inc. (NASDAQ:NTNX).
Do Hedge Funds Think NTNX Is A Good Stock To Buy Now?
At the end of December, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in NTNX a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Generation Investment Management was the largest shareholder of Nutanix, Inc. (NASDAQ:NTNX), with a stake worth $549 million reported as of the end of December. Trailing Generation Investment Management was Crosslink Capital, which amassed a stake valued at $63.4 million. Isomer Partners, Woodline Partners, and Millennium 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 Crosslink Capital allocated the biggest weight to Nutanix, Inc. (NASDAQ:NTNX), around 9.7% of its 13F portfolio. Isomer Partners is also relatively very bullish on the stock, earmarking 8.6 percent of its 13F equity portfolio to NTNX.
Judging by the fact that Nutanix, Inc. (NASDAQ:NTNX) has experienced falling interest from the smart money, it's easy to see that there was a specific group of money managers that decided to sell off their positions entirely heading into Q1. At the top of the heap, Franklin Parlamis's Aequim Alternative Investments dropped the largest investment of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $4.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $4.5 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Nutanix, Inc. (NASDAQ:NTNX). We will take a look at Prosperity Bancshares, Inc. (NYSE:PB), Kohl's Corporation (NYSE:KSS), Rexford Industrial Realty Inc (NYSE:REXR), Jabil Inc. (NYSE:JBL), OGE Energy Corp. (NYSE:OGE), Performance Food Group Company (NYSE:PFGC), and Penumbra Inc (NYSE:PEN). This group of stocks' market valuations match NTNX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PB,16,79627,-11 KSS,40,1149856,2 REXR,17,116092,5 JBL,28,455207,-3 OGE,20,180367,-2 PFGC,22,281693,-7 PEN,20,280710,-3 Average,23.3,363365,-2.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $363 million. That figure was $837 million in NTNX's case. Kohl's Corporation (NYSE:KSS) is the most popular stock in this table. On the other hand Prosperity Bancshares, Inc. (NYSE:PB) is the least popular one with only 16 bullish hedge fund positions. Nutanix, Inc. (NASDAQ:NTNX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NTNX is 40.1. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately NTNX wasn't nearly as popular as these 30 stocks and hedge funds that were betting on NTNX were disappointed as the stock returned -15.2% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.