Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Red Hat, Inc. (NYSE:RHT) investors should pay attention to an increase in enthusiasm from smart money in recent months. 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 Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), Loews Corporation (NYSE:L), and Best Buy Co., Inc. (NYSE:BBY) to gather more data points.
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At the moment, there are many gauges stock market investors employ to grade their holdings. A couple of the most under-the-radar gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can beat their index-focused peers by a superb margin (see the details here).
With all of this in mind, let’s take a gander at the fresh action encompassing Red Hat, Inc. (NYSE:RHT).
How have hedgies been trading Red Hat, Inc. (NYSE:RHT)?
At the end of September, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 3% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, D E Shaw has the number one position in Red Hat, Inc. (NYSE:RHT), worth close to $70.6 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $56.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Brett Barakett’s Tremblant Capital, Nick Niell’s Arrowgrass Capital Partners, and Renaissance Technologies.
Consequently, key hedge funds have jumped into Red Hat, Inc. (NYSE:RHT) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Red Hat, Inc. (NYSE:RHT). Balyasny Asset Management had $3.2 million invested in the company at the end of the quarter. Wojciech Uzdelewicz’s Espalier Global Management also made a $2.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Drew Cupps’ Cupps Capital Management, David Costen Haley’s HBK Investments, and Richard Schimel’s Sterling Ridge Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Red Hat, Inc. (NYSE:RHT) but similarly valued. These stocks are Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), Loews Corporation (NYSE:L), Best Buy Co., Inc. (NYSE:BBY), and Agrium Inc. (USA) (NYSE:AGU). This group of stocks’ market values is similar to Red Hat, Inc. (NYSE:RHT)’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NCLH | 38 | 745372 | 0 |
| L | 19 | 1010435 | -7 |
| BBY | 28 | 700302 | -6 |
| AGU | 20 | 1183360 | -9 |
As you can see, these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $910 million. That figure was $555 million in Red Hat, Inc. (NYSE:RHT)’s case. Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) is the most popular stock in this table. On the other hand, Loews Corporation (NYSE:L) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks, Red Hat, Inc. (NYSE:RHT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
