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While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Okta, Inc. (NASDAQ:OKTA).
Is OKTA a good stock to buy now? Prominent investors were becoming less confident. The number of long hedge fund bets fell by 9 in recent months. Okta, Inc. (NASDAQ:OKTA) was in 51 hedge funds' portfolios at the end of September. The all time high for this statistics is 60. Our calculations also showed that OKTA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Alex Sacerdote of Whale Rock Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with 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. Now we're going to check out the new hedge fund action surrounding Okta, Inc. (NASDAQ:OKTA).
What does smart money think about Okta, Inc. (NASDAQ:OKTA)?
At the end of September, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OKTA over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Okta, Inc. (NASDAQ:OKTA) was held by Whale Rock Capital Management, which reported holding $399.3 million worth of stock at the end of September. It was followed by SCGE Management with a $334 million position. Other investors bullish on the company included Alkeon Capital Management, Zevenbergen Capital Investments, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position SQN Investors allocated the biggest weight to Okta, Inc. (NASDAQ:OKTA), around 6.91% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, designating 5.2 percent of its 13F equity portfolio to OKTA.
Due to the fact that Okta, Inc. (NASDAQ:OKTA) has witnessed a decline in 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 full holdings in the third quarter. Interestingly, Ken Griffin's Citadel Investment Group dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, worth about $42.8 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also sold off its stock, about $42.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 9 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Okta, Inc. (NASDAQ:OKTA). These stocks are V.F. Corporation (NYSE:VFC), Waste Connections, Inc. (NYSE:WCN), Ball Corporation (NYSE:BLL), Otis Worldwide Corporation (NYSE:OTIS), Manulife Financial Corporation (NYSE:MFC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), and Wipro Limited (NYSE:WIT). This group of stocks' market valuations are closest to OKTA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VFC,22,457655,-5 WCN,32,544857,-7 BLL,33,932801,-5 OTIS,53,2224926,-3 MFC,21,196746,2 WLTW,51,2617710,2 WIT,9,93034,2 Average,31.6,1009676,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $1010 million. That figure was $1875 million in OKTA's case. Otis Worldwide Corporation (NYSE:OTIS) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 9 bullish hedge fund positions. Okta, Inc. (NASDAQ:OKTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OKTA is 69.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately OKTA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OKTA were disappointed as the stock returned 7.7% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.