Hedge Funds Souring On Seagate Technology plc (STX) Again?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Seagate Technology plc (NASDAQ:STX) based on that data.

Is Seagate Technology plc (NASDAQ:STX) a bargain? Hedge funds are becoming less confident. The number of long hedge fund positions decreased by 3 lately. Our calculations also showed that STX 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). STX was in 32 hedge funds’ portfolios at the end of March. There were 35 hedge funds in our database with STX positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the fresh hedge fund action surrounding Seagate Technology plc (NASDAQ:STX).

How are hedge funds trading Seagate Technology plc (NASDAQ:STX)?

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards STX over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, ValueAct Capital was the largest shareholder of Seagate Technology plc (NASDAQ:STX), with a stake worth $1539.9 million reported as of the end of September. Trailing ValueAct Capital was Renaissance Technologies, which amassed a stake valued at $289.2 million. AQR Capital Management, Antipodes Partners, and Two Sigma Advisors 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 ValueAct Capital allocated the biggest weight to Seagate Technology plc (NASDAQ:STX), around 22.12% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, designating 5.53 percent of its 13F equity portfolio to STX.

Judging by the fact that Seagate Technology plc (NASDAQ:STX) has witnessed a decline in interest from hedge fund managers, logic holds that there was a specific group of hedge funds who were dropping their positions entirely heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest position of the 750 funds tracked by Insider Monkey, totaling close to $25.3 million in stock, and John Hurley’s Cavalry Asset Management was right behind this move, as the fund cut about $7.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Seagate Technology plc (NASDAQ:STX) but similarly valued. These stocks are Galapagos NV (NASDAQ:GLPG), The J.M. Smucker Company (NYSE:SJM), Domino’s Pizza, Inc. (NYSE:DPZ), and Weyerhaeuser Co. (NYSE:WY). This group of stocks’ market caps are closest to STX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $646 million. That figure was $2206 million in STX’s case. Domino’s Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 15 bullish hedge fund positions. Seagate Technology plc (NASDAQ:STX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately STX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); STX investors were disappointed as the stock returned 8.7% 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 in 2020.

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