Should I Buy ACI Worldwide Inc (ACIW)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 873 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th. In this article we look at what those investors think of ACI Worldwide Inc (NASDAQ:ACIW).

Is ACI Worldwide Inc (NASDAQ:ACIW) a superb stock to buy now? Prominent investors were betting on the stock. The number of bullish hedge fund bets increased by 3 in recent months. ACI Worldwide Inc (NASDAQ:ACIW) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistic is 30. Our calculations also showed that ACIW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 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.

Jeffrey Smith of Starboard Value LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to view the key hedge fund action surrounding ACI Worldwide Inc (NASDAQ:ACIW).

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

At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the first quarter of 2020. On the other hand, there were a total of 22 hedge funds with a bullish position in ACIW a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in ACI Worldwide Inc (NASDAQ:ACIW) was held by Starboard Value LP, which reported holding $333.8 million worth of stock at the end of June. It was followed by Cardinal Capital with a $120.6 million position. Other investors bullish on the company included P2 Capital Partners, TIG Advisors, and Clearfield Capital. In terms of the portfolio weights assigned to each position Clearfield Capital allocated the biggest weight to ACI Worldwide Inc (NASDAQ:ACIW), around 11.78% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, earmarking 6.55 percent of its 13F equity portfolio to ACIW.

As industrywide interest jumped, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in ACI Worldwide Inc (NASDAQ:ACIW). Arrowstreet Capital had $4.6 million invested in the company at the end of the quarter. Ed Beddow and William Tichy’s Beddow Capital Management also initiated a $2.6 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Qing Li’s Sciencast Management, and Donald Sussman’s Paloma Partners.

Let’s check out hedge fund activity in other stocks similar to ACI Worldwide Inc (NASDAQ:ACIW). These stocks are Alignment Healthcare, Inc. (NASDAQ:ALHC), ICU Medical, Inc. (NASDAQ:ICUI), Tenable Holdings, Inc. (NASDAQ:TENB), Magnite Inc. (NASDAQ:MGNI), LivePerson, Inc. (NASDAQ:LPSN), Allison Transmission Holdings Inc (NYSE:ALSN), and Commscope Holding Company Inc (NASDAQ:COMM). This group of stocks’ market valuations are similar to ACIW’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $659 million in ACIW’s case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand Alignment Healthcare, Inc. (NASDAQ:ALHC) is the least popular one with only 4 bullish hedge fund positions. ACI Worldwide Inc (NASDAQ:ACIW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ACIW is 68.4. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately ACIW wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ACIW were disappointed as the stock returned -16% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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