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With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Sprout Social, Inc. (NASDAQ:SPT).
Is SPT a good stock to buy now? Sprout Social, Inc. (NASDAQ:SPT) shareholders have witnessed a decrease in hedge fund interest lately. Sprout Social, Inc. (NASDAQ:SPT) was in 18 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 19. There were 19 hedge funds in our database with SPT positions at the end of the second quarter. Our calculations also showed that SPT 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Steven Cohen of Point72 Asset 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 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. With all of this in mind we're going to take a gander at the fresh hedge fund action encompassing Sprout Social, Inc. (NASDAQ:SPT).
Do Hedge Funds Think SPT Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in SPT a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Hunt Lane Capital was the largest shareholder of Sprout Social, Inc. (NASDAQ:SPT), with a stake worth $34.7 million reported as of the end of September. Trailing Hunt Lane Capital was 12 West Capital Management, which amassed a stake valued at $30.6 million. General Equity Partners, Night Owl Capital Management, and Laurion 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 General Equity Partners allocated the biggest weight to Sprout Social, Inc. (NASDAQ:SPT), around 9.7% of its 13F portfolio. Hunt Lane Capital is also relatively very bullish on the stock, earmarking 5.09 percent of its 13F equity portfolio to SPT.
Judging by the fact that Sprout Social, Inc. (NASDAQ:SPT) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of funds who sold off their positions entirely heading into Q4. At the top of the heap, C. Ashton Newhall and James Lim's Greenspring Associates said goodbye to the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth close to $29.7 million in stock. Michael Blitzer's fund, Kingstown Capital Management, also cut its stock, about $5.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Sprout Social, Inc. (NASDAQ:SPT). We will take a look at Osisko Gold Royalties Ltd (NYSE:OR), Tower Semiconductor Ltd. (NASDAQ:TSEM), Olin Corporation (NYSE:OLN), Eidos Therapeutics, Inc. (NASDAQ:EIDX), Main Street Capital Corporation (NYSE:MAIN), Allegiant Travel Company (NASDAQ:ALGT), and Cimpress plc (NASDAQ:CMPR). This group of stocks' market caps are similar to SPT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OR,17,243791,2 TSEM,14,295737,-1 OLN,33,459651,0 EIDX,13,254264,-4 MAIN,4,10635,-3 ALGT,24,344081,1 CMPR,25,260556,0 Average,18.6,266959,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.6 hedge funds with bullish positions and the average amount invested in these stocks was $267 million. That figure was $127 million in SPT's case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 4 bullish hedge fund positions. Sprout Social, Inc. (NASDAQ:SPT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPT is 56.6. 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 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on SPT as the stock returned 35% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.