Is Guidewire Software Inc (GWRE) A Good Stock To Buy?

Hedge funds are not perfect. They have their bad picks just like everyone else. Micron, a stock hedge funds have loved, lost 50% during the last 12 months ending in October 30. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% in the same time period, vs. a gain of 5.2% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Guidewire Software Inc (NYSE:GWRE).

Guidewire Software Inc (NYSE:GWRE) was in 14 hedge funds’ portfolios at the end of the third quarter of 2015. GWRE has experienced an increase in hedge fund sentiment of late. There were 13 hedge funds in our database with GWRE holdings at the end of the previous quarter. At the end of this article we will also compare GWRE to other stocks including Colfax Corp (NYSE:CFX), CPFL Energia S.A. (ADR) (NYSE:CPL), and EPAM Systems Inc (NYSE:EPAM) to get a better sense of its popularity.

If you’d ask most traders, hedge funds are seen as underperforming, outdated financial tools of yesteryear. While there are greater than 8000 funds in operation today, Our experts look at the upper echelon of this club, about 700 funds. These investment experts oversee the majority of the hedge fund industry’s total asset base, and by monitoring their top equity investments, Insider Monkey has brought to light several investment strategies that have historically defeated Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, we’re going to view the key action encompassing Guidewire Software Inc (NYSE:GWRE).

What does the smart money think about Guidewire Software Inc (NYSE:GWRE)?

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, White Elm Capital, managed by Matthew Iorio, holds the most valuable position in Guidewire Software Inc (NYSE:GWRE). White Elm Capital has an $30.2 million position in the stock, comprising 3.1% of its 13F portfolio. On White Elm Capital’s heels is Renaissance Technologies, holding an $29.4 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions include Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.

Now, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized call position in Guidewire Software Inc (NYSE:GWRE). Balyasny Asset Management had $5.3 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated an $4.5 million position during the quarter. The other funds with new positions in the stock are Neil Chriss’s Hutchin Hill Capital, Cliff Asness’s AQR Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks similar to Guidewire Software Inc (NYSE:GWRE). We will take a look at Colfax Corp (NYSE:CFX), CPFL Energia S.A. (ADR) (NYSE:CPL), EPAM Systems Inc (NYSE:EPAM), and BankUnited (NYSE:BKU). All of these stocks’ market caps resemble GWRE’s market cap.

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 $353 million, versus $108 million in GWRE’s case. Colfax Corp (NYSE:CFX) is the most popular stock in this table, while CPFL Energia S.A. (ADR) (NYSE:CPL) is the least popular one with only 6 bullish hedge fund positions. Guidewire Software Inc (NYSE:GWRE) 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. In this regard CFX might be a better candidate to consider a long position.