Was The Smart Money Right About Synopsys, Inc. (SNPS)?

With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Synopsys, Inc. (NASDAQ:SNPS).

Is Synopsys, Inc. (NASDAQ:SNPS) a bargain? The best stock pickers were taking a bullish view. The number of bullish hedge fund bets rose by 7 recently. Synopsys, Inc. (NASDAQ:SNPS) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistic is 45. Our calculations also showed that SNPS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 34 hedge funds in our database with SNPS holdings at the end of March.

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 79 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.

David Blood of Generation Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, 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. With all of this in mind we’re going to take a peek at the fresh hedge fund action surrounding Synopsys, Inc. (NASDAQ:SNPS).

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

Heading into the third quarter of 2021, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SNPS over the last 24 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

The largest stake in Synopsys, Inc. (NASDAQ:SNPS) was held by Alkeon Capital Management, which reported holding $746.7 million worth of stock at the end of June. It was followed by Generation Investment Management with a $343.7 million position. Other investors bullish on the company included AQR Capital Management, GLG Partners, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Crestwood Capital Management allocated the biggest weight to Synopsys, Inc. (NASDAQ:SNPS), around 6.1% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, dishing out 3.01 percent of its 13F equity portfolio to SNPS.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Generation Investment Management, managed by David Blood and Al Gore, initiated the most valuable position in Synopsys, Inc. (NASDAQ:SNPS). Generation Investment Management had $343.7 million invested in the company at the end of the quarter. James Dinan’s York Capital Management also made a $25.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Chris Rokos’s Rokos Capital Management, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Crispin Odey’s Odey Asset Management Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Synopsys, Inc. (NASDAQ:SNPS) but similarly valued. We will take a look at Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), DexCom, Inc. (NASDAQ:DXCM), Kinder Morgan Inc (NYSE:KMI), DuPont de Nemours Inc (NYSE:DD), Electronic Arts Inc. (NASDAQ:EA), and American International Group Inc (NYSE:AIG). This group of stocks’ market valuations resemble SNPS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.1 hedge funds with bullish positions and the average amount invested in these stocks was $1370 million. That figure was $2057 million in SNPS’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 9 bullish hedge fund positions. Synopsys, Inc. (NASDAQ:SNPS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SNPS is 70.7. 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 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on SNPS as the stock returned 23.6% since the end of Q2 (through 11/5) 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.