Is PDFS A Good Stock To Buy Now?

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 aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to PDF Solutions, Inc. (NASDAQ:PDFS) changed recently.

Is PDFS a good stock to buy now? PDF Solutions, Inc. (NASDAQ:PDFS) has experienced a decrease in support from the world’s most elite money managers in recent months. PDF Solutions, Inc. (NASDAQ:PDFS) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 19. There were 13 hedge funds in our database with PDFS positions at the end of the second quarter. Our calculations also showed that PDFS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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 66 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 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.

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 let’s take a glance at the fresh hedge fund action encompassing PDF Solutions, Inc. (NASDAQ:PDFS).

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

At the end of September, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the second quarter of 2020. By comparison, 11 hedge funds held shares or bullish call options in PDFS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Royce & Associates held the most valuable stake in PDF Solutions, Inc. (NASDAQ:PDFS), which was worth $7.7 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $1.6 million worth of shares. Millennium Management, Divisar Capital, and Renaissance Technologies 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 Divisar Capital allocated the biggest weight to PDF Solutions, Inc. (NASDAQ:PDFS), around 0.45% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to PDFS.

Judging by the fact that PDF Solutions, Inc. (NASDAQ:PDFS) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of money managers that slashed their positions entirely heading into Q4. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $3.8 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $0.8 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to PDF Solutions, Inc. (NASDAQ:PDFS). We will take a look at Brookline Bancorp, Inc. (NASDAQ:BRKL), Oaktree Specialty Lending Corporation (NASDAQ:OCSL), Oxford Industries, Inc. (NYSE:OXM), Tivity Health, Inc. (NASDAQ:TVTY), American Finance Trust, Inc. (NASDAQ:AFIN), Foundation Building Materials, Inc. (NYSE:FBM), and SI-BONE, Inc. (NASDAQ:SIBN). This group of stocks’ market values are closest to PDFS’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $16 million in PDFS’s case. SI-BONE, Inc. (NASDAQ:SIBN) is the most popular stock in this table. On the other hand Oxford Industries, Inc. (NYSE:OXM) is the least popular one with only 8 bullish hedge fund positions. PDF Solutions, Inc. (NASDAQ:PDFS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PDFS is 26.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on PDFS as the stock returned 22.6% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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