We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether NetApp Inc. (NASDAQ:NTAP) is a good investment right now. We like to analyze hedge fund sentiment before conducting 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.
NetApp Inc. (NASDAQ:NTAP) was in 27 hedge funds’ portfolios at the end of December. NTAP shareholders have witnessed an increase in hedge fund sentiment of late. There were 26 hedge funds in our database with NTAP holdings at the end of the previous quarter. Our calculations also showed that NTAP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the key hedge fund action surrounding NetApp Inc. (NASDAQ:NTAP).
What does smart money think about NetApp Inc. (NASDAQ:NTAP)?
At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NTAP over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in NetApp Inc. (NASDAQ:NTAP), worth close to $340.2 million, accounting for 0.3% of its total 13F portfolio. The second most bullish fund manager is D E Shaw, led by D. E. Shaw, holding a $107.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism comprise John Overdeck and David Siegel’s Two Sigma Advisors, Noam Gottesman’s GLG Partners and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Beech Hill Partners allocated the biggest weight to NetApp Inc. (NASDAQ:NTAP), around 2.03% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, designating 1.01 percent of its 13F equity portfolio to NTAP.
Consequently, key money managers have jumped into NetApp Inc. (NASDAQ:NTAP) headfirst. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), created the most valuable position in NetApp Inc. (NASDAQ:NTAP). Schonfeld Strategic Advisors had $1.2 million invested in the company at the end of the quarter. Nathan Przybylo’s L2 Asset Management also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Ray Dalio’s Bridgewater Associates, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks similar to NetApp Inc. (NASDAQ:NTAP). These stocks are Xylem Inc (NYSE:XYL), Broadridge Financial Solutions, Inc. (NYSE:BR), NVR, Inc. (NYSE:NVR), and Phillips 66 Partners LP (NYSE:PSXP). This group of stocks’ market values are closest to NTAP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XYL | 21 | 555354 | 1 |
| BR | 35 | 343414 | 4 |
| NVR | 30 | 1060404 | -8 |
| PSXP | 5 | 22709 | 0 |
| Average | 22.75 | 495470 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $495 million. That figure was $687 million in NTAP’s case. Broadridge Financial Solutions, Inc. (NYSE:BR) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 5 bullish hedge fund positions. NetApp Inc. (NASDAQ:NTAP) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately NTAP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NTAP were disappointed as the stock returned -35.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
