Five Cybersecurity Stocks Hedge Funds Love: From Juniper (JNPR) To Palo Alto (PANW)

Cybersecurity stocks have had a relatively good 2016, with indexes that collate the stocks like the Nasdaq CTA Cybersecurity Index (INDEXNASDAQ:NQCYBR), which is up by more than 7.5% year-to-date, managing to beat market benchmarks like the S&P 500 and Nasdaq, both of which have gained roughly 4.5% this year.

In this article we’ll take a look at five cybersecurity stocks that the hedge funds in our database were the most fond of at the end of the second quarter, which are Juniper Networks, Inc. (NYSE:JNPR), FireEye Inc (NASDAQ:FEYE), F5 Networks, Inc. (NASDAQ:FFIV), Qihoo 360 Technology Co Ltd (NYSE:QIHU), and Palo Alto Networks Inc (NYSE:PANW), and evaluate their performance of late.

At Insider Monkey, we track around 750 hedge funds and other institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).

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#5. Juniper Networks, Inc. (NYSE:JNPR)

– Number of Hedge Funds With Long Positions (as of June 30): 27

– Total Value of Hedge Funds’ Holdings (as of June 30): $374.06 million

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 4.3%

Let’s start with Juniper Networks, Inc. (NYSE:JNPR), which remained one of the favorite cybersecurity stocks among hedge funds despite experiencing a 6.8% reduction in hedge fund ownership during the second quarter, being held in the portfolios of 27 funds in our system. Particularly bullish was Ric Dillon’s Diamond Hill Capital, which boosted the size of its holding by 12% during the quarter to 7.06 million shares valued at almost $159 million on June 30.

Shares of Juniper Networks, Inc. (NYSE:JNPR) lost almost 12% over the April-to-June period, but have managed to register gains of 2.1% since that period ended. Earlier this quarter, the company posted second quarter EPS of $0.50 on revenue of $1.22 billion, beating the Street’s consensus marks by $0.03 and $30 million, respectively. However, profit guidance for the third quarter disappointed investors, pushing the stock down.

#4. FireEye Inc (NASDAQ:FEYE)

– Number of Hedge Funds With Long Positions (as of June 30): 27

– Total Value of Hedge Funds’ Holdings (as of June 30): $2.61 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): %

The number of funds in our database with long positions in FireEye Inc (NASDAQ:FEYE) fell by one, to 27 during the second quarter. After tripling its stake over the quarter, Jim Simons’ Renaissance Technologies held one of the largest investments in the stock, totaling 1.26 million shares. Also long the stock as of June 30 was Christopher Zepf and Brian Thonn’s Kingdom Ridge Capital, which held 994,800 shares after doubling its stake during the quarter.

FireEye Inc (NASDAQ:FEYE)’s stock plummeted in the first half of the second quarter before staging a rebound toward the end of May. Nonetheless, shares ultimately lost more than 8% of their value over the quarter. The third quarter showed no mercy either, as shares of FireEye continued to fall, losing another 12.2%, largely on the back of its announcement of restructuring initiatives, mixed quarterly results, and trimmed guidance. More recently, analysts at Wunderlich reiterated a ‘Hold’ rating on the stock, citing “expected headwinds the company faces during the impending period of transition and restructuring.”

Hedge funds’ three favorite cybersecurity stocks are detailed on the next page.

#3. F5 Networks, Inc. (NASDAQ:FFIV)

– Number of Hedge Funds With Long Positions (as of June 30): 31

– Total Value of Hedge Funds’ Holdings (as of June 30): $1.05 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 13.9%

F5 Networks, Inc. (NASDAQ:FFIV) witnessed a 10% decline in the number of hedge funds long its shares during the second quarter, to 31. However, investors like First Eagle Investment Management, with 1.53 million shares worth $174 million, and Ken Griffin’s Citadel Advisors, with 1.2 million shares, remained quite bullish. Unlike its peers above, F5 Networks, Inc. (NASDAQ:FFIV) has had a great year, with its stock up by roughly 22% since the start of January, and by more than 5% since the third quarter began. In the past month, however, shares have dipped by more than 4%, driven by the resignation of VP of Product Development and Chief Technical Officer, Karl Triebes.

#2. Qihoo 360 Technology Co Ltd (NYSE:QIHU)

– Number of Hedge Funds With Long Positions (as of June 30): 32

– Total Value of Hedge Funds’ Holdings (as of June 30): $1.39 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 14.8%

The runner up on our list of popular cybersecurity stocks is Qihoo 360 Technology Co Ltd (NYSE:QIHU), in which 32 hedge funds in our database were long on June 30, up by 14.2% quarter-over-quarter. Among them was Frank Brosens’ Taconic Capital Advisors with 2.79 million shares worth more than $204 million on June 30. Leaving the big drop seen in May aside, Qihoo 360 Technology Co Ltd (NYSE:QIHU) had traded relatively flat this year, gaining 5.6% since January. However, the stock stopped trading in July, as the company went private.

#1. Palo Alto Networks Inc (NYSE:PANW)

– Number of Hedge Funds With Long Positions (as of June 30): 37

– Total Value of Hedge Funds’ Holdings (as of June 30): $801.09 million

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 7.3%

The most popular cybersecurity stock among the funds that we track was Palo Alto Networks Inc (NYSE:PANW), even though the company counted five fewer supporters among the funds that we track than it did on March 31. Bulls included Anand Parekh’s Alyeska Investment Group, which more than doubled its holding over the quarter to 1.03 million shares, and Karthik Sarma’s SRS Investment Management, which added a new stake to its portfolio worth more than $123 million.

Palo Alto Networks Inc (NYSE:PANW) lost more than 30% of its value over the first half of the year. However, shares have rebounded in the second half gaining almost 21%, in spite of lukewarm quarterly results posted in late-August. Most recently, the stock was helped by JMP Securities’ price target hike on it to $180 from $165 (it has a ‘Market Outperform’ rating on the stock) and Wunderlich’s ‘Buy’ rating and $190 price target issued earlier this week.

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.