Is QAD Inc. (NASDAQ:QADA) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
QAD Inc. (NASDAQ:QADA) has experienced an increase in support from the world’s most elite money managers in recent months. QADA was in 17 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 16 hedge funds in our database with QADA positions at the end of the previous quarter. Our calculations also showed that QADA isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to review the recent hedge fund action encompassing QAD Inc. (NASDAQ:QADA).
How have hedgies been trading QAD Inc. (NASDAQ:QADA)?
At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the second quarter of 2018. On the other hand, there were a total of 14 hedge funds with a bullish position in QADA a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Nantahala Capital Management held the most valuable stake in QAD Inc. (NASDAQ:QADA), which was worth $39.7 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $26.4 million worth of shares. Moreover, Portolan Capital Management, Royce & Associates, and Whetstone Capital Advisors were also bullish on QAD Inc. (NASDAQ:QADA), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key money managers have jumped into QAD Inc. (NASDAQ:QADA) headfirst. Divisar Capital, managed by Steven Baughman, initiated the biggest position in QAD Inc. (NASDAQ:QADA). Divisar Capital had $2.7 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $0.5 million investment in the stock during the quarter. The only other fund with a brand new QADA position is Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as QAD Inc. (NASDAQ:QADA) but similarly valued. These stocks are Unit Corporation (NYSE:UNT), Nexeo Solutions, Inc. (NASDAQ:NXEO), Schweitzer-Mauduit International, Inc. (NYSE:SWM), and The Providence Service Corporation (NASDAQ:PRSC). All of these stocks’ market caps are closest to QADA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UNT | 15 | 9318 | 5 |
| NXEO | 24 | 368341 | -6 |
| SWM | 8 | 18622 | -6 |
| PRSC | 14 | 157433 | 2 |
| Average | 15.25 | 138429 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $122 million in QADA’s case. Nexeo Solutions, Inc. (NASDAQ:NXEO) is the most popular stock in this table. On the other hand Schweitzer-Mauduit International, Inc. (NYSE:SWM) is the least popular one with only 8 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. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately QADA wasn’t nearly as popular as these 15 stock and hedge funds that were betting on QADA were disappointed as the stock returned 13.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
