Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Okta, Inc. (NASDAQ:OKTA) and compare its performance to hedge funds' consensus picks in 2019.
Okta, Inc. (NASDAQ:OKTA) investors should pay attention to an increase in activity from the world's largest hedge funds in recent months. OKTA was in 49 hedge funds' portfolios at the end of the third quarter of 2019. There were 39 hedge funds in our database with OKTA holdings at the end of the previous quarter. 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 at the end of this article for Q2 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_25717" align="alignnone" width="548"] Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's review the key hedge fund action encompassing Okta, Inc. (NASDAQ:OKTA).
Hedge fund activity in Okta, Inc. (NASDAQ:OKTA)
Heading into the fourth quarter of 2019, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OKTA over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of Okta, Inc. (NASDAQ:OKTA), with a stake worth $203 million reported as of the end of September. Trailing Alkeon Capital Management was Whale Rock Capital Management, which amassed a stake valued at $184 million. SCGE Management, Point72 Asset Management, 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 Center Lake Capital allocated the biggest weight to Okta, Inc. (NASDAQ:OKTA), around 9.75% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, earmarking 5.76 percent of its 13F equity portfolio to OKTA.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, initiated the biggest position in Okta, Inc. (NASDAQ:OKTA). Holocene Advisors had $55.8 million invested in the company at the end of the quarter. Amish Mehta's SQN Investors also initiated a $33 million position during the quarter. The following funds were also among the new OKTA investors: Stanley Druckenmiller's Duquesne Capital, Benjamin A. Smith's Laurion Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's now review 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 Godaddy Inc (NYSE:GDDY), iQIYI, Inc. (NASDAQ:IQ), Wheaton Precious Metals Corp. (NYSE:WPM), and Teledyne Technologies Incorporated (NYSE:TDY). All of these stocks' market caps are closest to OKTA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GDDY,48,2545499,4 IQ,22,966821,0 WPM,27,326903,8 TDY,29,686123,3 Average,31.5,1131337,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1131 million. That figure was $1121 million in OKTA's case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand iQIYI, Inc. (NASDAQ:IQ) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Okta, Inc. (NASDAQ:OKTA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on OKTA as the stock returned 85.1% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.