Is Mellanox Technologies, Ltd. (MLNX) A Good Stock To Buy?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Mellanox Technologies, Ltd. (NASDAQ:MLNX) .

Hedge fund interest in Mellanox Technologies, Ltd. (NASDAQ:MLNX) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Och-Ziff Capital Management Group LLC (NYSE:OZM), HSN, Inc. (NASDAQ:HSNI), and Virtu Financial Inc (NASDAQ:VIRT) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, we’re going to take a peek at the new action surrounding Mellanox Technologies, Ltd. (NASDAQ:MLNX).

What have hedge funds been doing with Mellanox Technologies, Ltd. (NASDAQ:MLNX)?

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in MLNX heading into this year. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Jim Simons’s Renaissance Technologies has the number one position in Mellanox Technologies, Ltd. (NASDAQ:MLNX), worth close to $44.3 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Rima Senvest Management, led by Richard Mashaal, holding a $26.2 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain Anand Parekh’s Alyeska Investment Group, Ken Hahn’s Quentec Asset Management and Mark Kingdon’s Kingdon Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cashed in their entire stakes in the stock during the third quarter. Interestingly, Bruce Garelick’s Garelick Capital Partners cashed in the largest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $8.5 million in stock, and Philip Hempleman’s Ardsley Partners was right behind this move, as the fund sold off about $7.4 million worth of shares.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mellanox Technologies, Ltd. (NASDAQ:MLNX) but similarly valued. We will take a look at Och-Ziff Capital Management Group LLC (NYSE:OZM), HSN, Inc. (NASDAQ:HSNI), Virtu Financial Inc (NASDAQ:VIRT), and Colony Financial Inc (NYSE:CLNY). This group of stocks’ market caps match MLNX’s market cap.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $188 million in MLNX’s case. Colony Financial Inc (NYSE:CLNY) is the most popular stock in this table. On the other hand HSN, Inc. (NASDAQ:HSNI) is the least popular one with only 13 bullish hedge fund positions. Mellanox Technologies, Ltd. (NASDAQ:MLNX) 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. In this regard CLNY might be a better candidate to consider taking a long position in.

Disclosure: none.