Were Expert Investors Right About Cloudflare, Inc. (NET)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Cloudflare, Inc. (NYSE:NET) based on that data and determine whether they were really smart about the stock.

Is Cloudflare, Inc. (NYSE:NET) ready to rally soon? Investors who are in the know were turning bullish. The number of long hedge fund positions increased by 7 recently. Cloudflare, Inc. (NYSE:NET) was in 50 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 60. Our calculations also showed that NET isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind let’s go over the fresh hedge fund action regarding Cloudflare, Inc. (NYSE:NET).

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

Heading into the fourth quarter of 2021, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards NET over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of Cloudflare, Inc. (NYSE:NET), with a stake worth $129.2 million reported as of the end of September. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $106.5 million. Citadel Investment Group, SW Investment Management, and Strategy Capital 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 SW Investment Management allocated the biggest weight to Cloudflare, Inc. (NYSE:NET), around 24.65% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, setting aside 9.88 percent of its 13F equity portfolio to NET.

Now, key money managers were breaking ground themselves. Renaissance Technologies, created the most valuable position in Cloudflare, Inc. (NYSE:NET). Renaissance Technologies had $25.5 million invested in the company at the end of the quarter. Jose Fernandez’s Stepstone Group also initiated a $13 million position during the quarter. The other funds with new positions in the stock are Jeffrey Diehl’s Adams Street Partners, Benjamin A. Smith’s Laurion Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks similar to Cloudflare, Inc. (NYSE:NET). These stocks are Mizuho Financial Group Inc. (NYSE:MFG), Robinhood Markets Inc. (NASDAQ:HOOD), Parker-Hannifin Corporation (NYSE:PH), AutoZone, Inc. (NYSE:AZO), Unity Software Inc. (NYSE:U), DuPont de Nemours Inc (NYSE:DD), and KKR & Co Inc. (NYSE:KKR). All of these stocks’ market caps match NET’s market cap.

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As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $3107 million. That figure was $958 million in NET’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. Cloudflare, Inc. (NYSE:NET) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NET is 79. 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 and beat the market again by 3.6 percentage points. Unfortunately, NET wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NET were disappointed as the stock returned -14.4% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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