Okta, Inc. (OKTA): Bullish Hedge Fund Bets Reached An All Time High
We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Okta, Inc. (NASDAQ:OKTA) and determine whether hedge funds skillfully traded this stock.
Okta, Inc. (NASDAQ:OKTA) shareholders have witnessed an increase in hedge fund interest lately. Okta, Inc. (NASDAQ:OKTA) was in 60 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics was 52 previously. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 48 hedge funds in our database with OKTA positions at the end of the first quarter. Our calculations also showed that OKTA isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let's go over the recent hedge fund action encompassing Okta, Inc. (NASDAQ:OKTA).
Hedge fund activity in Okta, Inc. (NASDAQ:OKTA)
Heading into the third quarter of 2020, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OKTA over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Okta, Inc. (NASDAQ:OKTA) was held by Whale Rock Capital Management, which reported holding $408 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $319.8 million position. Other investors bullish on the company included SCGE Management, Zevenbergen Capital Investments, and Citadel Investment Group. In terms of the portfolio weights assigned to each position SQN Investors allocated the biggest weight to Okta, Inc. (NASDAQ:OKTA), around 7.21% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, dishing out 5.9 percent of its 13F equity portfolio to OKTA.
As one would reasonably expect, key money managers were breaking ground themselves. Hitchwood Capital Management, managed by James Crichton, assembled the biggest position in Okta, Inc. (NASDAQ:OKTA). Hitchwood Capital Management had $20 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also initiated a $13 million position during the quarter. The other funds with brand new OKTA positions are Highbridge Capital Management, Ryan Caldwell's Chiron Investment Management, and Dipak Patel's Alight Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Okta, Inc. (NASDAQ:OKTA) but similarly valued. These stocks are HP Inc. (NYSE:HPQ), McKesson Corporation (NYSE:MCK), Public Service Enterprise Group Incorporated (NYSE:PEG), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Credit Suisse Group AG (NYSE:CS), Nokia Corporation (NYSE:NOK), and Zimmer Biomet Holdings Inc (NYSE:ZBH). This group of stocks' market caps are similar to OKTA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HPQ,35,1106876,-8 MCK,61,1958790,-2 PEG,31,649382,-3 ALXN,57,3577628,1 CS,14,134420,3 NOK,26,218711,3 ZBH,62,752893,11 Average,40.9,1199814,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $1200 million. That figure was $1991 million in OKTA's case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 14 bullish hedge fund positions. Okta, Inc. (NASDAQ:OKTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OKTA is 87.9. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately OKTA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on OKTA were disappointed as the stock returned 2.4% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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