Is SWI Stock A Buy or Sell?

In this article we are going to use hedge fund sentiment as a tool and determine whether SolarWinds Corporation (NYSE:SWI) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is SWI stock a buy? Investors who are in the know were becoming hopeful. The number of bullish hedge fund positions increased by 9 in recent months. SolarWinds Corporation (NYSE:SWI) was in 24 hedge funds’ portfolios at the end of December. The all time high for this statistic is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SWI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 15 hedge funds in our database with SWI holdings at the end of September.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 gander at the fresh hedge fund action encompassing SolarWinds Corporation (NYSE:SWI).

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

At fourth quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 60% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in SWI a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jim Davidson, Dave Roux and Glenn Hutchins’s Silver Lake Partners has the most valuable position in SolarWinds Corporation (NYSE:SWI), worth close to $1.8381 billion, amounting to 15.8% of its total 13F portfolio. Sitting at the No. 2 spot is Sunriver Management, led by Will Cook, holding a $22 million position; 3.6% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish encompass Renaissance Technologies, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC and Joseph Samuels’s Islet Management. In terms of the portfolio weights assigned to each position Silver Lake Partners allocated the biggest weight to SolarWinds Corporation (NYSE:SWI), around 15.83% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, dishing out 3.62 percent of its 13F equity portfolio to SWI.

Consequently, key hedge funds were leading the bulls’ herd. First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, assembled the largest position in SolarWinds Corporation (NYSE:SWI). First Pacific Advisors LLC had $10.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Ken Griffin’s Citadel Investment Group, and Mika Toikka’s AlphaCrest Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to SolarWinds Corporation (NYSE:SWI). We will take a look at Trupanion Inc (NASDAQ:TRUP), RLI Corp. (NYSE:RLI), HUYA Inc. (NYSE:HUYA), Semtech Corporation (NASDAQ:SMTC), Stag Industrial Inc (NYSE:STAG), Rapid7 Inc (NASDAQ:RPD), and Unum Group (NYSE:UNM). All of these stocks’ market caps resemble SWI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $1915 million in SWI’s case. Stag Industrial Inc (NYSE:STAG) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 12 bullish hedge fund positions. SolarWinds Corporation (NYSE:SWI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SWI is 86.2. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on SWI as the stock returned 21.5% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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