Hedge Funds Are Selling Zuora, Inc. (ZUO)

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Zuora, Inc. (NYSE:ZUO), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Zuora, Inc. (NYSE:ZUO) has experienced a decrease in hedge fund interest of late. Zuora, Inc. (NYSE:ZUO) was in 21 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 26. Our calculations also showed that ZUO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.


Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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 check out the key hedge fund action surrounding Zuora, Inc. (NYSE:ZUO).

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

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in ZUO a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is ZUO A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Greenhouse Funds, managed by Joe Milano, holds the biggest position in Zuora, Inc. (NYSE:ZUO). Greenhouse Funds has a $46.1 million position in the stock, comprising 4.9% of its 13F portfolio. Sitting at the No. 2 spot is Hound Partners, led by Jonathan Auerbach, holding a $40.7 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise Brian Ashford-Russell and Tim Woolley’s Polar Capital, Brian Bares’s Bares Capital Management and John Hurley’s Cavalry Asset Management. In terms of the portfolio weights assigned to each position 0 allocated the biggest weight to Zuora, Inc. (NYSE:ZUO), around 4.95% of its 13F portfolio. 0 is also relatively very bullish on the stock, dishing out 1.92 percent of its 13F equity portfolio to ZUO.

Judging by the fact that Zuora, Inc. (NYSE:ZUO) has witnessed declining sentiment from the smart money, we can see that there exists a select few hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Steve Cohen’s Point72 Asset Management cut the biggest investment of the 750 funds monitored by Insider Monkey, totaling about $6.3 million in stock. D. E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $1.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Zuora, Inc. (NYSE:ZUO). These stocks are GenMark Diagnostics, Inc (NASDAQ:GNMK), Cornerstone Building Brands, Inc. (NYSE:CNR), EnPro Industries, Inc. (NYSE:NPO), Heska Corp (NASDAQ:HSKA), Five Prime Therapeutics Inc (NASDAQ:FPRX), Community Health Systems (NYSE:CYH), and Cardtronics plc (NASDAQ:CATM). This group of stocks’ market caps match ZUO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GNMK 30 529479 9
CNR 27 169852 5
NPO 17 213801 3
HSKA 28 283963 11
FPRX 29 719407 4
CYH 21 401413 -5
CATM 23 624327 0
Average 25 420320 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $420 million. That figure was $151 million in ZUO’s case. GenMark Diagnostics, Inc (NASDAQ:GNMK) is the most popular stock in this table. On the other hand EnPro Industries, Inc. (NYSE:NPO) is the least popular one with only 17 bullish hedge fund positions. Zuora, Inc. (NYSE:ZUO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ZUO is 43.6. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately ZUO wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ZUO investors were disappointed as the stock returned 8.9% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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