In this article we are going to use hedge fund sentiment as a tool and determine whether RingCentral Inc (NYSE:RNG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is RingCentral Inc (NYSE:RNG) a bargain? The smart money was reducing their bets on the stock. The number of bullish hedge fund positions decreased by 4 in recent months. RingCentral Inc (NYSE:RNG) was in 47 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 67. Our calculations also showed that RNG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
To the average investor there are a large number of gauges investors can use to grade their holdings. A pair of the less utilized gauges are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best money managers can trounce the broader indices by a solid margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.
Charles Clough of Clough Capital Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV 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. Keeping this in mind let’s check out the fresh hedge fund action regarding RingCentral Inc (NYSE:RNG).
Do Hedge Funds Think RNG Is A Good Stock To Buy Now?
At second quarter’s end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RNG over the last 24 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.
Among these funds, Tiger Global Management LLC held the most valuable stake in RingCentral Inc (NYSE:RNG), which was worth $1144.9 million at the end of the second quarter. On the second spot was Alkeon Capital Management which amassed $1052.3 million worth of shares. SCGE Management, Alkeon Capital Management, and Citadel Investment Group 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 Hunt Lane Capital allocated the biggest weight to RingCentral Inc (NYSE:RNG), around 6.69% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, dishing out 5.7 percent of its 13F equity portfolio to RNG.
Judging by the fact that RingCentral Inc (NYSE:RNG) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies that slashed their full holdings by the end of the second quarter. Interestingly, Amish Mehta’s SQN Investors said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $102.2 million in stock, and Peter S. Park’s Park West Asset Management was right behind this move, as the fund sold off about $63.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). We will take a look at Carnival Corporation & plc (NYSE:CUK), Futu Holdings Limited (NASDAQ:FUTU), Tencent Music Entertainment Group (NYSE:TME), Etsy Inc (NASDAQ:ETSY), Generac Holdings Inc. (NYSE:GNRC), Slack Technologies Inc (NYSE:WORK), and Hormel Foods Corporation (NYSE:HRL). This group of stocks’ market values are similar to RNG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CUK | 10 | 236979 | 6 |
| FUTU | 31 | 1190137 | 5 |
| TME | 35 | 570093 | -28 |
| ETSY | 47 | 1731703 | -6 |
| GNRC | 38 | 594282 | 2 |
| WORK | 61 | 5328202 | 1 |
| HRL | 24 | 562433 | -2 |
| Average | 35.1 | 1459118 | -3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.1 hedge funds with bullish positions and the average amount invested in these stocks was $1459 million. That figure was $3285 million in RNG’s case. Slack Technologies Inc (NYSE:WORK) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 10 bullish hedge fund positions. RingCentral Inc (NYSE:RNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RNG is 58.3. 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 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 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately RNG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RNG were disappointed as the stock returned -19.4% since the end of June (through 11/5) 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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
