SanDisk Corporation (NASDAQ:SNDK)‘s stock has tumbled this year, dropping by around 35% since the beginning of January. Joseph Moore, an Analyst at Morgan Stanley, downgraded SanDisk Corporation (NASDAQ:SNDK) last week to ‘Equal Weight’, after upgrading the stock to ‘Overweight’ in September 2014. The stock has dropped more than 30% since then, but Moore remained bullish until last week, when he downgraded the stock, causing it to tumble yet further. On the other hand, Summit Research has upgraded the stock to ‘Buy’ and increased its price target to an exceptionally bullish $108 earlier today, suggesting upside potential of over 60%, which has caused the stock to rebound this morning. Summit Research has pointed to the weak Yen as a potential benefit to the company in upcoming quarters, as it relies on importing NAND flash memory from Japan. One analyst is bearish, one is bullish; what’s an investor to do? Let’s turn to hedge fund sentiment on the stock to see how the smart money feels about SanDisk.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 142% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Why do we track hedge funds in the case of individual stocks? Hedge funds give us the perspective of many experienced hedge fund managers in a single metric. In the case of SanDisk, the number of hedge funds with positions in the stock took a big dive from 58 at the end of the fourth quarter of 2014 to 40 by the end of first quarter of 2015. Likewise, total investment plunged by more than 50% to $1.35 billion from $2.76 billion.
Insider trading details give another powerful perspective on the stock. There was one insider purchase in the first quarter, as the Director at SanDisk Corporation (NASDAQ:SNDK), Scott Mercer bought 3,000 shares. There were also some insider sales filed in the first and second quarters. Executive VP and CFO at SanDisk Corporation (NASDAQ:SNDK), Judy Bruner sold all of her 6,806 shares in the first quarter. Senior VP at SanDisk Corporation (NASDAQ:SNDK), Yehoshua Nir sold around 9,500 shares combined in the first and second quarters. Insider purchases always outweigh insider sales, and therefore insider sentiment can be considered as slightly positive for SanDisk Corporation (NASDAQ:SNDK)’s stock in this case.
Keeping this in mind, let’s view the latest hedge fund activity on SanDisk Corporation (NASDAQ:SNDK).
How are hedge funds trading SanDisk Corporation (NASDAQ:SNDK)?
Heading into the second quarter, a total of 40 hedge funds held long positions in this stock, a change of -31% from the previous quarter. There were many hedge fund managers who decided to get rid of this stock in the first quarter, whereas there were only a few others who remained bullish on this stock.
According to Insider Monkey’s database, as of March 31, the largest position in the stock was held by Iridian Asset Management, managed by David Cohen and Harold Levy, and consisted of 6.35 million shares valued at $404.1 million, comprising 3.4% of its 13F portfolio. The second-largest position in the stock was held by Kensico Capital, led by Michael Lowenstein, which owned 6.3 million shares valued at $399.1 million and accounting for 7.9% of its 13F portfolio. Remaining hedge funds that held long positions included D. E. Shaw’s D E Shaw, David Harding’s Winton Capital Management, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.
As expected, many hedge funds have sold out of their entire stakes in SanDisk Corporation. Leading the way is Rob Citrone‘s Discovery Capital Management which sold around 2.8 million shares, which were valued at $274.4 million at the end of the fourth quarter. Following Discovery Capital Management is John Griffin‘s fund, Blue Ridge Capital, which sold around 1.7 million shares, valued at $166.6 million. These transactions are important to note, as aggregate hedge fund interest fell by 18 funds at the end of the first quarter and aggregate hedge fund capital declined tremendously.
There were some big hedge fund names which opted to stay out of this stock in the first quarter. This shows a strongly negative hedge fund sentiment for SanDisk Corporation. With insider sentiment being slightly positive for this stock, and analysts wildly split on it, we feel the very negative hedge fund sentiment outweighs any other indicators and makes SanDisk a stock to avoid right now.
Disclosure: None
