Why Zoom Video Communications (ZM) Stock is a Compelling Investment Case

Cristopher Centers

Bill Nygren from Oakmark Funds recently released its Q3 2020 Investor Letter, a copy of which you can download here. You should check out Bill Nygren’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year. In the said letter, Bill […]

Bill Nygren from Oakmark Funds recently released its Q3 2020 Investor Letter, a copy of which you can download here. You should check out Bill Nygren’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Bill Nygren highlighted a few stocks and Zoom Video Communications Inc. (NASDAQ:ZM) is one of them. Zoom Video Communications Inc. (NASDAQ:ZM) is a communications technology company. Year-to-date, Zoom Video Communications Inc. (NASDAQ:ZM) stock gained 625.6% and on October 8th it had a closing price of $478.55. Here is what Bill Nygren said:

“The biggest newcomer to the large-cap list this year was Zoom Video Communications. The company has a market cap of $134 billion and sells at nearly 100 times trailing sales. With so many people working from home, video conferencing has been a lifesaver. Most days I have multiple video calls. When people talk about changes from the past six months that are likely to outlast Covid-19, increased use of video conferencing is at the top of most lists. I use Zoom frequently and love the service. But I also use Cisco WebEx, Microsoft Teams, Google Meet, Apple FaceTime and Verizon Blue Jeans Meetings. When I’m on a call, it’s hard to remember which one I’m using because the services are so similar. Zoom’s competitors are not underfunded startups, but rather are some of the biggest businesses in the world. While it is easy to project that video conferencing will grow over the next decade, there is a wide range in the growth estimates, and it is hard to predict what market shares will be, what the services will cost or what profit margins will look like. Zoom faces the uncertainties you’d expect for a young company with $1 billion of sales. But its future is much more uncertain than you’d typically see from a $134 billion market-cap stock. Will Zoom stock perform well from here? I have no idea. But I do know the range of possible outcomes for the business is much wider than it is for most companies that enjoy a market cap above $100 billion.”

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Antonio Guillem/Shutterstock.com

In Q2 2020, the number of bullish hedge fund positions on Zoom Video Communications Inc. (NASDAQ:ZM) stock increased by about 2% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Zoom’s growth potential. Our calculations showed that Zoom Video Communications Inc. (NASDAQ:ZM) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers after its stock price crashed. We go through lists like the 10 most profitable companies in the world 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 enewsletter below to receive our stories in your inbox:

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

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