Should You Avoid NetGear, Inc. (NTGR)?

NetGear, Inc. (NASDAQ:NTGR) investors should pay attention to a decrease in hedge fund sentiment lately.

In today’s marketplace, there are many indicators shareholders can use to watch their holdings. Two of the best are hedge fund and insider trading sentiment. At Insider Monkey, our studies have shown that, historically, those who follow the best picks of the best money managers can outperform their index-focused peers by a significant margin (see just how much).

Just as integral, optimistic insider trading sentiment is another way to break down the marketplace. Obviously, there are a number of stimuli for a corporate insider to downsize shares of his or her company, but only one, very clear reason why they would initiate a purchase. Many academic studies have demonstrated the market-beating potential of this tactic if you know where to look (learn more here).

Keeping this in mind, let’s take a peek at the recent action regarding NetGear, Inc. (NASDAQ:NTGR).

How have hedgies been trading NetGear, Inc. (NASDAQ:NTGR)?

At the end of the fourth quarter, a total of 5 of the hedge funds we track were bullish in this stock, a change of 0% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings substantially.

When looking at the hedgies we track, Chuck Royce’s Royce & Associates had the most valuable position in NetGear, Inc. (NASDAQ:NTGR), worth close to $170.1 million, accounting for 0.6% of its total 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which held a $46.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds with similar optimism include Ken Griffin’s Citadel Investment Group, Joseph A. Jolson’s Harvest Capital Strategies and Ken Griffin’s Citadel Investment Group.

Seeing as NetGear, Inc. (NASDAQ:NTGR) has experienced falling interest from the smart money, we can see that there was a specific group of hedgies that elected to cut their entire stakes heading into 2013. Interestingly, Joel Greenblatt’s Gotham Asset Management cut the largest position of the “upper crust” of funds we key on, totaling about $2.4 million in 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).

Insider trading activity in NetGear, Inc. (NASDAQ:NTGR)

Bullish insider trading is best served when the company in focus has seen transactions within the past six months. Over the last half-year time period, NetGear, Inc. (NASDAQ:NTGR) has seen zero unique insiders purchasing, and 5 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to NetGear, Inc. (NASDAQ:NTGR). These stocks are Acme Packet, Inc. (NASDAQ:APKT), Arris Group, Inc. (NASDAQ:ARRS), Ciena Corporation (NASDAQ:CIEN), ADTRAN, Inc. (NASDAQ:ADTN), and Loral Space & Communications Ltd. (NASDAQ:LORL). This group of stocks are the members of the communication equipment industry and their market caps resemble NTGR’s market cap.