Is Virtusa Corporation (VRTU) A Good Stock To Buy?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Virtusa Corporation (NASDAQ:VRTU).

Virtusa Corporation (NASDAQ:VRTU) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of the third quarter of 2015. At the end of this article we will also compare VRTU to other stocks, including LTC Properties Inc (NYSE:LTC), Seaspan Corporation (NYSE:SSW), and FBL Financial Group (NYSE:FFG) to get a better sense of its popularity.

According to most shareholders, hedge funds are viewed as worthless, old financial tools of yesteryear. While there are over 8000 funds in operation at the moment, We hone in on the bigwigs of this group, about 700 funds. These investment experts handle the majority of the smart money’s total capital, and by tracking their unrivaled stock picks, Insider Monkey has brought to light various investment strategies that have historically beaten the broader indices. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Keeping this in mind, we’re going to take a gander at the key action regarding Virtusa Corporation (NASDAQ:VRTU).

How have hedgies been trading Virtusa Corporation (NASDAQ:VRTU)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter. 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).

Of the funds tracked by Insider Monkey, Portolan Capital Management, managed by George McCabe, holds the number one position in Virtusa Corporation (NASDAQ:VRTU). The fund has reported a $9.1 million position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by AlphaOne Capital Partners, led by Paul Hondros, holding a $5.7 million stake in the company; the fund has 2.4% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism include Jim Simons’s Renaissance Technologies, Peter A. Wright’s P.A.W. CAPITAL PARTNERS and Cliff Asness’s AQR Capital Management.

Because Virtusa Corporation (NASDAQ:VRTU) has experienced bearish sentiment from the smart money, we can see that there were a few funds who sold off their positions entirely last quarter. It’s worth mentioning that Joel Greenblatt’s Gotham Asset Management dumped the largest stake of all the hedgies monitored by Insider Monkey, totaling about $2.2 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $1.2 million worth of VRTU stock. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Virtusa Corporation (NASDAQ:VRTU) but similarly valued. We will take a look at LTC Properties Inc (NYSE:LTC), Seaspan Corporation (NYSE:SSW), FBL Financial Group (NYSE:FFG), and Community Bank System, Inc. (NYSE:CBU). All of these stocks’ market caps match VRTU’s market cap.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $25 million in VRTU’s case. LTC Properties Inc (NYSE:LTC) is the most popular stock in this table, while Community Bank System, Inc. (NYSE:CBU) is the laggard with only 6 bullish hedge fund positions. Compared to these stocks Virtusa Corporation (NASDAQ:VRTU) is clearly more popular, with 9 long hedge fund positions. 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.