Netflix, Inc. (NASDAQ:NFLX) has experienced an increase in hedge fund sentiment recently. It was upgraded by Cantor Fitzgerald this morning by 20%, and the firm’s price target now rests 7.8% higher than current levels. Let’s take a look at what hedge funds and corporate insiders were doing to prepare for this event, and interestingly, if some of them disagreed with the move.
If you’d ask most shareholders, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are over 8000 funds trading at the moment, we at Insider Monkey choose to focus on the leaders of this club, about 450 funds. Most estimates calculate that this group has its hands on the lion’s share of the smart money’s total capital, and by paying attention to their highest performing stock picks, we have found a few investment strategies that have historically outstripped the S&P 500 index. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).
Equally as beneficial, bullish insider trading activity is another way to break down the financial markets. Just as you’d expect, there are a variety of incentives for an executive to drop shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Several academic studies have demonstrated the market-beating potential of this method if “monkeys” understand what to do (learn more here).
Consequently, let’s take a peek at the recent action surrounding Netflix, Inc. (NASDAQ:NFLX).
How have hedgies been trading Netflix, Inc. (NASDAQ:NFLX)?
In preparation for this year, a total of 30 of the hedge funds we track were bullish in this stock, a change of 30% from the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially.
When looking at the hedgies we track, Icahn Capital LP, managed by Carl Icahn, holds the biggest position in Netflix, Inc. (NASDAQ:NFLX). Icahn Capital LP has a $514 million position in the stock, comprising 4% of its 13F portfolio. The second largest stake is held by D. E. Shaw of D E Shaw, with a $180 million call position; 1.9% of its 13F portfolio is allocated to the stock. Other hedge funds that are bullish include Philippe Laffont’s Coatue Management, Barry Rosenstein’s JANA Partners and Ken Griffin’s Citadel Investment Group.
Now, some big names have jumped into Netflix, Inc. (NASDAQ:NFLX) headfirst. Coatue Management, managed by Philippe Laffont, initiated the largest position in Netflix, Inc. (NASDAQ:NFLX). Coatue Management had 118 million invested in the company at the end of the quarter. Christopher Lord’s Criterion Capital also initiated a $40 million position during the quarter. The following funds were also among the new NFLX investors: Brian Kelly’s Asian Century Quest, Christopher Medlock James’s Partner Fund Management, and Phill Gross and Robert Atchinson’s Adage Capital Management.
How are insiders trading Netflix, Inc. (NASDAQ:NFLX)?
Insider trading activity, especially when it’s bullish, is best served when the primary stock in question has experienced transactions within the past half-year. Over the latest six-month time frame, Netflix, Inc. (NASDAQ:NFLX) has seen zero unique insiders purchasing, and 5 insider sales (see the details of insider trades here).
Let’s also examine hedge fund and insider activity in other stocks similar to Netflix, Inc. (NASDAQ:NFLX). These stocks are Hastings Entertainment, Inc. (NASDAQ:HAST) and Trans World Entertainment Corporation (NASDAQ:TWMC). This group of stocks belong to the music & video stores industry and their market caps match NFLX’s market cap.
| Company Name | # of Hedge Funds | # of Insiders Buying | # of Insiders Selling |
| Hastings Entertainment, Inc. (NASDAQ:HAST) | 1 | 1 | 3 |
| Trans World Entertainment Corporation (NASDAQ:TWMC) | 2 | 0 | 2 |
With the results demonstrated by the aforementioned tactics, everyday investors must always keep an eye on hedge fund and insider trading sentiment, and Netflix, Inc. (NASDAQ:NFLX) shareholders fit into this picture quite nicely.
