Should You Sell Adobe Systems Incorporated (ADBE)?

Is Adobe Systems Incorporated (NASDAQ:ADBE) a buy, or do a couple indicators suggest now’s the time to sell?

If you were to ask many market players, hedge funds are seen as bloated, old investment vehicles of a forgotten age. Although there are In excess of 8,000 hedge funds trading today, Insider Monkey looks at the moguls of this club, about 525 funds. It is assumed that this group has its hands on most of the smart money’s total assets, and by monitoring their highest performing stock picks, we’ve spotted a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Equally as key, optimistic insider trading sentiment is another way to look at the marketplace. There are many incentives for a corporate insider to get rid of shares of his or her company, but just one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the useful potential of this method if piggybackers understand where to look (learn more here).

Keeping this in mind, let’s examine the latest info for Adobe Systems Incorporated (NASDAQ:ADBE).

How have hedgies been trading Adobe Systems Incorporated (NASDAQ:ADBE)?

At Q2’s end, a total of 34 of the hedge funds we track were long in this stock, a change of 0% from the first quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly.

When using filings from the hedgies we track, Jeffrey Ubben’s ValueAct Capital had the biggest position in Adobe Systems Incorporated (NASDAQ:ADBE), worth close to $1.4262 billion, accounting for 14.6% of its total 13F portfolio. Coming in second is Andreas Halvorsen of Viking Global, with a $289.4 million position; 1.6% of its 13F portfolio is allocated to the company. Remaining hedgies that hold long positions include D. E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group and Rob Butts and Josh Clark’s Southpoint Capital Advisors.

Judging by the fact that Adobe Systems Incorporated (NASDAQ:ADBE) has witnessed declining interest from the top-tier hedge fund industry, it’s easy to see that there was a specific group of hedgies that slashed their full holdings last quarter. At the top of the heap, Christian Leone’s Luxor Capital Group dropped the biggest position of the 450+ funds we key on, valued at an estimated $103.7 million in stock. Ricky Sandler’s fund, Eminence Capital, also dropped its stock, about $55 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

How are insiders trading Adobe Systems Incorporated (NASDAQ:ADBE)?

Legal insider trading, particularly when it’s bullish, is particularly usable when the company in question has seen transactions within the past half-year. Over the last six-month time frame, Adobe Systems Incorporated (NASDAQ:ADBE) has experienced zero unique insiders buying, and 9 insider sales (see the details of insider trades here).

We’ll also review the relationship between both of these indicators in other stocks similar to Adobe Systems Incorporated (NASDAQ:ADBE). These stocks are Workday Inc (NYSE:WDAY), Catamaran Corp (USA) (NASDAQ:CTRX), CA, Inc. (NASDAQ:CA), salesforce.com, inc. (NYSE:CRM), and Intuit Inc. (NASDAQ:INTU). This group of stocks are in the application software industry and their market caps are closest to ADBE’s market cap.

Using the results explained by our analyses, regular investors should always pay attention to hedge fund and insider trading activity, and Adobe Systems Incorporated (NASDAQ:ADBE) is no exception.

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