Is SPLK A Good Stock To Buy Now?

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 817 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 Splunk Inc (NASDAQ:SPLK), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is SPLK a good stock to buy now? Splunk Inc (NASDAQ:SPLK) has experienced a decrease in support from the world’s most elite money managers of late. Splunk Inc (NASDAQ:SPLK) was in 44 hedge funds’ portfolios at the end of September. The all time high for this statistic is 49. There were 49 hedge funds in our database with SPLK holdings at the end of June. Our calculations also showed that SPLK 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.

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 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 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.

Charles Clough of Clough Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let’s take a look at the recent hedge fund action surrounding Splunk Inc (NASDAQ:SPLK).

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

Heading into the fourth quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. By comparison, 36 hedge funds held shares or bullish call options in SPLK a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Splunk Inc (NASDAQ:SPLK) was held by Holocene Advisors, which reported holding $160.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $154.6 million position. Other investors bullish on the company included Citadel Investment Group, Jericho Capital Asset Management, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to Splunk Inc (NASDAQ:SPLK), around 13.68% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, earmarking 6.18 percent of its 13F equity portfolio to SPLK.

Due to the fact that Splunk Inc (NASDAQ:SPLK) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Larry Chen and Terry Zhang’s Tairen Capital sold off the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $26.4 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dumped about $21.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Splunk Inc (NASDAQ:SPLK) but similarly valued. These stocks are IQVIA Holdings, Inc. (NYSE:IQV), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Verisk Analytics, Inc. (NASDAQ:VRSK), KLA Corporation (NASDAQ:KLAC), Marriott International Inc (NASDAQ:MAR), MSCI Inc (NYSE:MSCI), and The Hershey Company (NYSE:HSY). This group of stocks’ market valuations match SPLK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IQV 64 3333467 -2
CRWD 71 4300669 -7
VRSK 40 1112108 4
KLAC 33 899003 -4
MAR 56 2334020 8
MSCI 47 906149 3
HSY 43 1230648 4
Average 50.6 2016581 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.6 hedge funds with bullish positions and the average amount invested in these stocks was $2017 million. That figure was $1032 million in SPLK’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand KLA Corporation (NASDAQ:KLAC) is the least popular one with only 33 bullish hedge fund positions. Splunk Inc (NASDAQ:SPLK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPLK is 41.4. 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 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 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately SPLK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SPLK investors were disappointed as the stock returned -14.4% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.

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