At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Check Point Software Technologies Ltd. (NASDAQ:CHKP) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Check Point Software Technologies Ltd. (NASDAQ:CHKP) a healthy stock for your portfolio? Money managers were reducing their bets on the stock. The number of long hedge fund bets retreated by 1 lately. Our calculations also showed that CHKP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most traders, hedge funds are perceived as unimportant, old financial tools of years past. While there are more than 8000 funds in operation today, Our researchers choose to focus on the moguls of this club, about 850 funds. These hedge fund managers orchestrate the majority of the hedge fund industry’s total asset base, and by shadowing their finest picks, Insider Monkey has determined various investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the key hedge fund action regarding Check Point Software Technologies Ltd. (NASDAQ:CHKP).
How have hedgies been trading Check Point Software Technologies Ltd. (NASDAQ:CHKP)?
Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CHKP over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Ako Capital was the largest shareholder of Check Point Software Technologies Ltd. (NASDAQ:CHKP), with a stake worth $156.6 million reported as of the end of September. Trailing Ako Capital was Arrowstreet Capital, which amassed a stake valued at $108.4 million. GLG Partners, D E Shaw, and Renaissance Technologies 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 TAM Capital Management allocated the biggest weight to Check Point Software Technologies Ltd. (NASDAQ:CHKP), around 96.23% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, designating 3.3 percent of its 13F equity portfolio to CHKP.
Due to the fact that Check Point Software Technologies Ltd. (NASDAQ:CHKP) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies who sold off their positions entirely last quarter. Interestingly, John Brennan’s Sirios Capital Management dumped the largest position of all the hedgies followed by Insider Monkey, comprising an estimated $30.4 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $3.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Check Point Software Technologies Ltd. (NASDAQ:CHKP). We will take a look at IAC/InterActiveCorp (NASDAQ:IAC), Skyworks Solutions Inc (NASDAQ:SWKS), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), and Marvell Technology Group Ltd. (NASDAQ:MRVL). This group of stocks’ market caps are closest to CHKP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IAC | 57 | 2692755 | -14 |
| SWKS | 29 | 768807 | -14 |
| BMRN | 54 | 1567492 | 5 |
| MRVL | 29 | 498283 | 0 |
| Average | 42.25 | 1381834 | -5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $1382 million. That figure was $599 million in CHKP’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Skyworks Solutions Inc (NASDAQ:SWKS) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Check Point Software Technologies Ltd. (NASDAQ:CHKP) is even less popular than SWKS. Hedge funds dodged a bullet by taking a bearish stance towards CHKP. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately CHKP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CHKP investors were disappointed as the stock returned 6.9% during the second quarter 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 most of these stocks already outperformed the market so far in 2020.
Follow Check Point Software Techs Ltd (NASDAQ:CHKP)
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Disclosure: None. This article was originally published at Insider Monkey.
