Is FTNT Stock A Buy or Sell?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Fortinet Inc (NASDAQ:FTNT) changed recently.

Is FTNT stock a buy? Fortinet Inc (NASDAQ:FTNT) shareholders have witnessed a decrease in hedge fund interest in recent months. Fortinet Inc (NASDAQ:FTNT) was in 32 hedge funds’ portfolios at the end of December. The all time high for this statistic is 44. Our calculations also showed that FTNT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Now we’re going to analyze the fresh hedge fund action encompassing Fortinet Inc (NASDAQ:FTNT).

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

At fourth quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FTNT over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Fortinet Inc (NASDAQ:FTNT) was held by Renaissance Technologies, which reported holding $525.9 million worth of stock at the end of December. It was followed by Two Sigma Advisors with a $150.5 million position. Other investors bullish on the company included Fundsmith LLP, Arrowstreet Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Fortinet Inc (NASDAQ:FTNT), around 1.84% of its 13F portfolio. Chiron Investment Management is also relatively very bullish on the stock, dishing out 1.43 percent of its 13F equity portfolio to FTNT.

Since Fortinet Inc (NASDAQ:FTNT) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds who were dropping their entire stakes last quarter. It’s worth mentioning that Alex Sacerdote’s Whale Rock Capital Management said goodbye to the largest stake of the 750 funds followed by Insider Monkey, comprising about $230.2 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $6.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fortinet Inc (NASDAQ:FTNT) but similarly valued. These stocks are Cerner Corporation (NASDAQ:CERN), Alexandria Real Estate Equities Inc (NYSE:ARE), BeiGene, Ltd. (NASDAQ:BGNE), Yum China Holdings, Inc. (NYSE:YUMC), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Franco-Nevada Corporation (NYSE:FNV), and Carnival Corporation (NYSE:CCL). All of these stocks’ market caps are similar to FTNT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $1563 million. That figure was $1221 million in FTNT’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Alexandria Real Estate Equities Inc (NYSE:ARE) is the least popular one with only 14 bullish hedge fund positions. Fortinet Inc (NASDAQ:FTNT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FTNT is 44.8. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and still beat the market by 1.5 percentage points. A small number of hedge funds were also right about betting on FTNT as the stock returned 32.7% since the end of the fourth quarter (through 4/12) and outperformed the market by an even larger margin.

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

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