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Is Okta, Inc. (OKTA) Going to Burn These Hedge Funds?

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Is Okta, Inc. (NASDAQ:OKTA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Okta, Inc. (NASDAQ:OKTA) the right investment to pursue these days? Prominent investors were getting less bullish. The number of bullish hedge fund bets dropped by 13 lately. Okta, Inc. (NASDAQ:OKTA) was in 48 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 61. Our calculations also showed that OKTA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for 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, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 review the recent hedge fund action surrounding Okta, Inc. (NASDAQ:OKTA).

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

At Q1's end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in OKTA over the last 23 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, SCGE Management held the most valuable stake in Okta, Inc. (NASDAQ:OKTA), which was worth $393.9 million at the end of the fourth quarter. On the second spot was Zevenbergen Capital Investments which amassed $184.7 million worth of shares. Arrowstreet Capital, Alkeon Capital Management, and Steadfast Capital 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 SQN Investors allocated the biggest weight to Okta, Inc. (NASDAQ:OKTA), around 5.6% of its 13F portfolio. Night Owl Capital Management is also relatively very bullish on the stock, setting aside 4.95 percent of its 13F equity portfolio to OKTA.

Seeing as Okta, Inc. (NASDAQ:OKTA) has faced a decline in interest from the smart money, we can see that there is a sect of money managers that elected to cut their entire stakes in the first quarter. Interestingly, Alex Sacerdote's Whale Rock Capital Management cut the largest investment of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $125.9 million in stock, and Brandon Haley's Holocene Advisors was right behind this move, as the fund dropped about $125.3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 13 funds in the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Okta, Inc. (NASDAQ:OKTA) but similarly valued. We will take a look at Fastenal Company (NASDAQ:FAST), The Williams Companies, Inc. (NYSE:WMB), Verisk Analytics, Inc. (NASDAQ:VRSK), Best Buy Co., Inc. (NYSE:BBY), Waste Connections, Inc. (NYSE:WCN), ResMed Inc. (NYSE:RMD), and KKR & Co Inc. (NYSE:KKR). 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 FAST,24,576286,-6 WMB,34,475466,-4 VRSK,34,1584703,2 BBY,33,957600,-5 WCN,31,822237,-4 RMD,25,313736,-2 KKR,56,4542794,2 Average,33.9,1324689,-2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $1325 million. That figure was $1617 million in OKTA's case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Fastenal Company (NASDAQ:FAST) is the least popular one with only 24 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 53.1. 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. 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on OKTA, though not to the same extent, as the stock returned 8.5% since Q1 (through June 18th) and outperformed the market as well.

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