Hedge Funds Are Piling Into QAD Inc. (QADA)

In this article we will analyze whether QAD Inc. (NASDAQ:QADA) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

QAD Inc. (NASDAQ:QADA) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. QAD Inc. (NASDAQ:QADA) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 14 hedge funds in our database with QADA positions at the end of the first quarter. Our calculations also showed that QADA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Israel Englander of Millennium Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the key hedge fund action surrounding QAD Inc. (NASDAQ:QADA).

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

At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 64% from the previous quarter. The graph below displays the number of hedge funds with bullish position in QADA over the last 24 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in QAD Inc. (NASDAQ:QADA) was held by Nantahala Capital Management, which reported holding $80.6 million worth of stock at the end of June. It was followed by Renaissance Technologies with a $45.6 million position. Other investors bullish on the company included Harspring Capital Management, AltraVue Capital, and Water Island Capital. In terms of the portfolio weights assigned to each position AltraVue Capital allocated the biggest weight to QAD Inc. (NASDAQ:QADA), around 8.36% of its 13F portfolio. Harspring Capital Management is also relatively very bullish on the stock, setting aside 3.39 percent of its 13F equity portfolio to QADA.

As aggregate interest increased, some big names have jumped into QAD Inc. (NASDAQ:QADA) headfirst. Water Island Capital, managed by John Orrico, assembled the largest position in QAD Inc. (NASDAQ:QADA). Water Island Capital had $17.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $7 million position during the quarter. The other funds with new positions in the stock are Carl Tiedemann and Michael Tiedemann’s TIG Advisors, Israel Englander’s Millennium Management, and Wayne Yu’s BCK Capital.

Let’s also examine hedge fund activity in other stocks similar to QAD Inc. (NASDAQ:QADA). We will take a look at BioLife Solutions, Inc. (NASDAQ:BLFS), Pretium Resources Inc (NYSE:PVG), The RealReal, Inc. (NASDAQ:REAL), Eagle Bancorp, Inc. (NASDAQ:EGBN), Global Blue Group Holding AG (NYSE:GB), Replimune Group, Inc. (NASDAQ:REPL), and Genetron Holdings Limited (NASDAQ:GTH). This group of stocks’ market values match QADA’s market value.

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As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $231 million in QADA’s case. The RealReal, Inc. (NASDAQ:REAL) is the most popular stock in this table. On the other hand BioLife Solutions, Inc. (NASDAQ:BLFS) is the least popular one with only 9 bullish hedge fund positions. QAD Inc. (NASDAQ:QADA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for QADA is 81.2. 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 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately QADA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on QADA were disappointed as the stock returned 0.8% since the end of June (through 10/22) 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 many of these stocks already outperformed the market since 2019.

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