Brocade Communications Systems, Inc. (BRCD): Are Hedge Funds Right About This Stock?

Is Brocade Communications Systems, Inc. (NASDAQ:BRCD) a bargain? The smart money is betting on the stock. The number of bullish hedge fund positions advanced by 2 in recent months.

In the 21st century investor’s toolkit, there are plenty of metrics investors can use to analyze their holdings. A pair of the most underrated are hedge fund and insider trading sentiment. At Insider Monkey, our research analyses have shown that, historically, those who follow the best picks of the elite hedge fund managers can trounce their index-focused peers by a solid margin (see just how much).

Just as beneficial, positive insider trading activity is a second way to parse down the stock market universe. As the old adage goes: there are a variety of incentives for an insider to sell shares of his or her company, but only one, very clear reason why they would initiate a purchase. Various empirical studies have demonstrated the impressive potential of this strategy if you understand what to do (learn more here).

With all of this in mind, let’s take a look at the recent action encompassing Brocade Communications Systems, Inc. (NASDAQ:BRCD).

What does the smart money think about Brocade Communications Systems, Inc. (NASDAQ:BRCD)?

At the end of the first quarter, a total of 25 of the hedge funds we track were bullish in this stock, a change of 9% from the previous quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably.

Of the funds we track, Cliff Asness’s AQR Capital Management had the most valuable position in Brocade Communications Systems, Inc. (NASDAQ:BRCD), worth close to $79.6 million, comprising 0.3% of its total 13F portfolio. On AQR Capital Management’s heels is Soros Fund Management, managed by George Soros, which held a $54.1 million position; 0.6% of its 13F portfolio is allocated to the company. Some other hedgies that are bullish include Clifton S. Robbins’s Blue Harbour Group, Jim Simons’s Renaissance Technologies and David Dreman’s Dreman Value Management.

Now, specific money managers were leading the bulls’ herd. Soros Fund Management, managed by George Soros, initiated the most valuable position in Brocade Communications Systems, Inc. (NASDAQ:BRCD). Soros Fund Management had 54.1 million invested in the company at the end of the quarter. Clifton S. Robbins’s Blue Harbour Group also made a $44.3 million investment in the stock during the quarter. The other funds with brand new BRCD positions are Ken Gray and Steve Walsh’s Bryn Mawr Capital and John Burbank’s Passport Capital.

How have insiders been trading Brocade Communications Systems, Inc. (NASDAQ:BRCD)?

Insider purchases made by high-level executives is particularly usable when the company in question has experienced transactions within the past six months. Over the latest six-month time period, Brocade Communications Systems, Inc. (NASDAQ:BRCD) has seen zero unique insiders purchasing, and 2 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Brocade Communications Systems, Inc. (NASDAQ:BRCD). These stocks are Seagate Technology PLC (NASDAQ:STX), NetApp Inc. (NASDAQ:NTAP), Western Digital Corp. (NASDAQ:WDC), Emulex Corporation (NYSE:ELX), and Fusion-IO, Inc. (NYSE:FIO). This group of stocks are the members of the data storage devices industry and their market caps resemble BRCD’s market cap.