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Was The Smart Money Right About CrowdStrike Holdings, Inc. (CRWD)?

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  • CRWD

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards CrowdStrike Holdings, Inc. (NASDAQ:CRWD) to find out whether there were any major changes in hedge funds' views.

Is CrowdStrike Holdings, Inc. (NASDAQ:CRWD) a bargain? The smart money was reducing their bets on the stock. The number of long hedge fund positions fell by 11 in recent months. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) was in 66 hedge funds' portfolios at the end of June. The all time high for this statistic is 92. Our calculations also showed that CRWD isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 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 79 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.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. Now we're going to go over the fresh hedge fund action surrounding CrowdStrike Holdings, Inc. (NASDAQ:CRWD).

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

At Q2's end, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CRWD over the last 24 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is CRWD A Good Stock To Buy?
Is CRWD A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Chase Coleman's Tiger Global Management LLC has the most valuable position in CrowdStrike Holdings, Inc. (NASDAQ:CRWD), worth close to $1.8941 billion, accounting for 3.5% of its total 13F portfolio. The second most bullish fund manager is Matrix Capital Management, managed by David Goel and Paul Ferri, which holds a $753.9 million position; 8.2% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions include Alex Sacerdote's Whale Rock Capital Management, D. E. Shaw's D E Shaw and Philippe Laffont's Coatue Management. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to CrowdStrike Holdings, Inc. (NASDAQ:CRWD), around 14.9% of its 13F portfolio. Matrix Capital Management is also relatively very bullish on the stock, designating 8.24 percent of its 13F equity portfolio to CRWD.

Judging by the fact that CrowdStrike Holdings, Inc. (NASDAQ:CRWD) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there exists a select few hedge funds that slashed their full holdings in the second quarter. Interestingly, Catherine D. Wood's ARK Investment Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, totaling close to $61 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $31.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 11 funds in the second quarter.

Let's now review hedge fund activity in other stocks similar to CrowdStrike Holdings, Inc. (NASDAQ:CRWD). These stocks are NXP Semiconductors NV (NASDAQ:NXPI), Honda Motor Co Ltd (NYSE:HMC), Global Payments Inc (NYSE:GPN), Twitter Inc (NYSE:TWTR), Banco Bradesco SA (NYSE:BBD), DocuSign, Inc. (NASDAQ:DOCU), and Freeport-McMoRan Inc. (NYSE:FCX). This group of stocks' market valuations are closest to CRWD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NXPI,52,1336949,-1 HMC,10,374945,-2 GPN,66,4858185,4 TWTR,89,6031488,-18 BBD,18,362308,-1 DOCU,58,4610698,-2 FCX,76,3869626,8 Average,52.7,3063457,-1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.7 hedge funds with bullish positions and the average amount invested in these stocks was $3063 million. That figure was $7267 million in CRWD's case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 10 bullish hedge fund positions. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CRWD is 51. 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on CRWD as the stock returned 12.1% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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