Is Cloudera, Inc. (CLDR) A Good Stock To Buy?

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Cloudera, Inc. (NYSE:CLDR) and see how the stock is affected by the recent hedge fund activity.

Cloudera, Inc. (NYSE:CLDR) has experienced an increase in hedge fund interest lately. CLDR was in 26 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with CLDR holdings at the end of the previous quarter. Our calculations also showed that CLDR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Carl Icahn of Icahn Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action surrounding Cloudera, Inc. (NYSE:CLDR).

How have hedgies been trading Cloudera, Inc. (NYSE:CLDR)?

Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the second quarter of 2019. By comparison, 25 hedge funds held shares or bullish call options in CLDR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Icahn Capital held the most valuable stake in Cloudera, Inc. (NYSE:CLDR), which was worth $485.5 million at the end of the third quarter. On the second spot was RGM Capital which amassed $61.9 million worth of shares. Raging Capital Management, Citadel Investment Group, and Intrinsic Edge Capital 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 Raging Capital Management allocated the biggest weight to Cloudera, Inc. (NYSE:CLDR), around 6.69% of its portfolio. RGM Capital is also relatively very bullish on the stock, designating 4.12 percent of its 13F equity portfolio to CLDR.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Icahn Capital, managed by Carl Icahn, established the biggest position in Cloudera, Inc. (NYSE:CLDR). Icahn Capital had $485.5 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also initiated a $10.5 million position during the quarter. The other funds with brand new CLDR positions are Chuck Royce’s Royce & Associates, Brandon Haley’s Holocene Advisors, and David E. Shaw’s D E Shaw.

Let’s now review hedge fund activity in other stocks similar to Cloudera, Inc. (NYSE:CLDR). We will take a look at Columbia Property Trust Inc (NYSE:CXP), CNO Financial Group Inc (NYSE:CNO), Integer Holdings Corporation (NYSE:ITGR), and Ultragenyx Pharmaceutical Inc (NASDAQ:RARE). This group of stocks’ market caps resemble CLDR’s market cap.

View table here if you experience formatting issues.

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 $156 million. That figure was $653 million in CLDR’s case. Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is the most popular stock in this table. On the other hand Columbia Property Trust Inc (NYSE:CXP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Cloudera, Inc. (NYSE:CLDR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CLDR as the stock returned 11.5% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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