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Was The Smart Money Right About Piling Into Five9 Inc (FIVN)?

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·6 min read
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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Five9 Inc (NASDAQ:FIVN) changed recently.

Five9 Inc (NASDAQ:FIVN) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 47 hedge funds' portfolios at the end of December. Our calculations also showed that FIVN 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 Fidelity National Financial Inc (NYSE:FNF), Concho Resources Inc. (NYSE:CXO), and WestRock Company (NYSE:WRK) to gather more data points.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. With all of this in mind we're going to take a look at the latest hedge fund action regarding Five9 Inc (NASDAQ:FIVN).

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

At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FIVN over the last 22 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Among these funds, Whale Rock Capital Management held the most valuable stake in Five9 Inc (NASDAQ:FIVN), which was worth $558.7 million at the end of the fourth quarter. On the second spot was Alkeon Capital Management which amassed $526.6 million worth of shares. SQN Investors, Point72 Asset Management, and Arrowstreet Capital 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 Calixto Global Investors allocated the biggest weight to Five9 Inc (NASDAQ:FIVN), around 9.13% of its 13F portfolio. SQN Investors is also relatively very bullish on the stock, setting aside 8.24 percent of its 13F equity portfolio to FIVN.

Seeing as Five9 Inc (NASDAQ:FIVN) has experienced a decline in interest from the smart money, we can see that there is a sect of hedgies that elected to cut their positions entirely heading into Q1. It's worth mentioning that Sanjay Venkat's Jeneq Management cut the largest stake of the 750 funds tracked by Insider Monkey, worth close to $25.6 million in stock, and David Fiszel's Honeycomb Asset Management was right behind this move, as the fund sold off about $12 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Five9 Inc (NASDAQ:FIVN). We will take a look at Fidelity National Financial Inc (NYSE:FNF), Concho Resources Inc. (NYSE:CXO), WestRock Company (NYSE:WRK), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), Equitable Holdings, Inc. (NYSE:EQH), Appian Corporation (NASDAQ:APPN), and UDR, Inc. (NYSE:UDR). This group of stocks' market caps resemble FIVN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNF,40,1337274,-4 CXO,41,1045563,-6 WRK,43,668766,11 XRAY,28,1224435,3 EQH,46,1269636,10 APPN,24,1163680,9 UDR,23,482699,-3 Average,35,1027436,2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1027 million. That figure was $1930 million in FIVN's case. Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand UDR, Inc. (NYSE:UDR) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Five9 Inc (NASDAQ:FIVN) is more popular among hedge funds. Our overall hedge fund sentiment score for FIVN is 85. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately FIVN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FIVN were disappointed as the stock returned 7.8% since the end of the fourth quarter (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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