Were Expert Investors Right About Splunk Inc (SPLK)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Splunk Inc (NASDAQ:SPLK) and determine whether hedge funds had an edge regarding this stock.

Hedge fund interest in Splunk Inc (NASDAQ:SPLK) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SPLK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Tractor Supply Company (NASDAQ:TSCO), Fox Corporation (NASDAQ:FOXA), and DISH Network Corp. (NASDAQ:DISH) to gather more data points.

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. With all of this in mind let’s analyze the fresh hedge fund action regarding Splunk Inc (NASDAQ:SPLK).

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

Heading into the fourth quarter of 2021, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards SPLK over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Splunk Inc (NASDAQ:SPLK) was held by Citadel Investment Group, which reported holding $256.8 million worth of stock at the end of September. It was followed by Holocene Advisors with a $196.6 million position. Other investors bullish on the company included Newbrook Capital Advisors, Citadel Investment Group, and Miller Value Partners. In terms of the portfolio weights assigned to each position Anatole Investment Management allocated the biggest weight to Splunk Inc (NASDAQ:SPLK), around 9.05% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, designating 8.56 percent of its 13F equity portfolio to SPLK.

Since Splunk Inc (NASDAQ:SPLK) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds that elected to cut their full holdings heading into Q4. At the top of the heap, Renaissance Technologies sold off the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising about $40.6 million in stock, and Joseph Samuels’s Islet Management was right behind this move, as the fund said goodbye to about $21.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Splunk Inc (NASDAQ:SPLK) but similarly valued. These stocks are Tractor Supply Company (NASDAQ:TSCO), Fox Corporation (NASDAQ:FOXA), DISH Network Corp. (NASDAQ:DISH), Verisign, Inc. (NASDAQ:VRSN), Huntington Bancshares Incorporated (NASDAQ:HBAN), ORIX Corporation (NYSE:IX), and Invitation Homes Inc. (NYSE:INVH). This group of stocks’ market caps match SPLK’s market cap.

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As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $1543 million. That figure was $1251 million in SPLK’s case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 4 bullish hedge fund positions. Splunk Inc (NASDAQ:SPLK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPLK is 79.5. 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, SPLK wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SPLK 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.