Was The Smart Money Right About RingCentral Inc (RNG)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding RingCentral Inc (NYSE:RNG).

Is RingCentral Inc (NYSE:RNG) a buy right now? Prominent investors were in an optimistic mood. The number of bullish hedge fund positions inched up by 4 in recent months. RingCentral Inc (NYSE:RNG) was in 63 hedge funds’ portfolios at the end of the fourth quarter of 2020. 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 Q4 rankings). There were 59 hedge funds in our database with RNG holdings at the end of September.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Och-Ziff Capital Management

Daniel Och, Founder of OZ Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 analyze the fresh hedge fund action surrounding RingCentral Inc (NYSE:RNG).

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

At Q4’s end, a total of 63 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 62 hedge funds with a bullish position in RNG a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is RNG A Good Stock To Buy?

Among these funds, Alkeon Capital Management held the most valuable stake in RingCentral Inc (NYSE:RNG), which was worth $1327.2 million at the end of the fourth quarter. On the second spot was Tiger Global Management LLC which amassed $1260.6 million worth of shares. SCGE Management, Zevenbergen Capital Investments, and SQN Investors 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 Jeneq Management allocated the biggest weight to RingCentral Inc (NYSE:RNG), around 8.21% of its 13F portfolio. SQN Investors is also relatively very bullish on the stock, designating 8.19 percent of its 13F equity portfolio to RNG.

Consequently, key money managers have jumped into RingCentral Inc (NYSE:RNG) headfirst. Black-and-White Capital, managed by Seth Wunder, established the largest position in RingCentral Inc (NYSE:RNG). Black-and-White Capital had $39.7 million invested in the company at the end of the quarter. Suraj Parkash Chopra’s Force Hill Capital Management also initiated a $21.7 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Nicolas Boullet’s First Growth Capital Management, and Brian Ashford-Russell and Tim Woolley’s Polar Capital.

Let’s go over hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). These stocks are Verisk Analytics, Inc. (NASDAQ:VRSK), Johnson Controls International plc (NYSE:JCI), TransDigm Group Incorporated (NYSE:TDG), Cummins Inc. (NYSE:CMI), Paychex, Inc. (NASDAQ:PAYX), STMicroelectronics N.V. (NYSE:STM), and CRH PLC (NYSE:CRH). All of these stocks’ market caps match RNG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRSK 32 1438418 -8
JCI 34 795050 10
TDG 64 6891017 0
CMI 45 828914 -4
PAYX 32 910613 4
STM 17 142352 -4
CRH 7 100951 0
Average 33 1586759 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1587 million. That figure was $4401 million in RNG’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 7 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 86.3. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately RNG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RNG were disappointed as the stock returned -15.8% since the end of December (through 4/30) 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 since 2019.

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