Is Zoom Video Communications, Inc. (NASDAQ:ZM) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Zoom Video Communications, Inc. (NASDAQ:ZM) an attractive investment today? Investors who are in the know are turning less bullish. The number of bullish hedge fund positions decreased by 2 in recent months. Our calculations also showed that ZM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ZM was in 30 hedge funds' portfolios at the end of the third quarter of 2019. There were 32 hedge funds in our database with ZM positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
[caption id="attachment_26088" align="aligncenter" width="508"] Chase Coleman of Tiger Global[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the key hedge fund action regarding Zoom Video Communications, Inc. (NASDAQ:ZM).
How are hedge funds trading Zoom Video Communications, Inc. (NASDAQ:ZM)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ZM over the last 17 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Whale Rock Capital Management was the largest shareholder of Zoom Video Communications, Inc. (NASDAQ:ZM), with a stake worth $101 million reported as of the end of September. Trailing Whale Rock Capital Management was Tiger Global Management, which amassed a stake valued at $91.4 million. Coatue Management, SRS Investment Management, and SCGE 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 Strategy Capital allocated the biggest weight to Zoom Video Communications, Inc. (NASDAQ:ZM), around 4.74% of its portfolio. Cavalry Asset Management is also relatively very bullish on the stock, setting aside 3.17 percent of its 13F equity portfolio to ZM.
Due to the fact that Zoom Video Communications, Inc. (NASDAQ:ZM) has experienced declining sentiment from the smart money, it's safe to say that there was a specific group of hedgies that slashed their positions entirely in the third quarter. It's worth mentioning that Guy Shahar's DSAM Partners dropped the biggest stake of the 750 funds watched by Insider Monkey, valued at close to $18.8 million in stock, and Dan Loeb's Third Point was right behind this move, as the fund dropped about $17.8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Zoom Video Communications, Inc. (NASDAQ:ZM) but similarly valued. We will take a look at Wipro Limited (NYSE:WIT), McCormick & Company, Incorporated (NYSE:MKC), The Kroger Co. (NYSE:KR), and Weyerhaeuser Co. (NYSE:WY). All of these stocks' market caps are closest to ZM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WIT,12,111102,-2 MKC,27,138492,-3 KR,25,632469,-3 WY,28,451903,0 Average,23,333492,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $333 million. That figure was $469 million in ZM's case. Weyerhaeuser Co. (NYSE:WY) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Zoom Video Communications, Inc. (NASDAQ:ZM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ZM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZM were disappointed as the stock returned -2.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.