Which of These Two Companies that Reported Earnings Hedge Funds Say You Should Bet On

Two stocks that headed in opposite directions in the after hours trading yesterday following their earnings releases were Progress Software Corporation (NASDAQ:PRGS), slumping by nearly 16%, and CalAmp Corp. (NASDAQ:CAMP), which appreciated by more than 11%. Let us take a closer look at their quarterly results and whether hedge funds are right in their prognosis about these two companies.

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The $1.27 billion global software company engaged in developing business applications, Progress Software Corporation (NASDAQ:PRGS), delivered an EPS of $0.39 beating the estimates by $0.02. However, revenues for the third fiscal quarter came in at $100.7 million and were $3.59 million lighter than expectations. Moreover, the company’s revenue guidance of $113 million to $118 million for the first fiscal quarter was also lower than the $121.6 million consensus and acted as a deterrent for investors. The EPS guidance of $0.47 to $0.51 was however above the $0.47 consensus. The company’s gross margin on a GAAP basis dropped to 84% for the quarter ended August 30 as compared to 90% margin for the same quarter a year earlier.

At the end of the April – June quarter, 15 hedge funds, among those that we track, held stakes worth $70.82 million in Progress Software Corporation (NASDAQ:PRGS), amassing 5.1% of the company. This marked a decrease from the $81.28 million held by 17 funds at the end of March. Douglas T. Granat‘s Trigran Investments and David Shaw‘s D. E. Shaw are the two largest stockholders of Progress Software Corporation (NASDAQ:PRGS) within our database, with respective holdings of about 605,800 shares and 380,600 shares.

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s picks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period from 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research had predicted, outperforming the market every year and returning 118% over the last 36 months, which is more than 58 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details here).

CalAmp Corp. (NASDAQ:CAMP) on the other hand managed to beat both the top and bottom line estimates as its EPS of $0.27 for the second fiscal quarter ending in August was $0.01 higher than estimates while quarterly revenues of $69.8 million came in $1.84 million ahead of estimates. Furthermore, the leading provider of wireless products lifted its outlook for the third fiscal quarter as it now expects revenue for the quarter to fall between $71 million and $76 million as compared to the $73.1 million consensus and EPS is now expected in the $0.26 to $0.30 range as opposed to an earlier estimate of $0.28. According to CEO Michael Burdiek favorable product mix drove the gross margins for the quarter higher at 36.2% as compared to 34.6% in the same quarter last year.

The hedge fund interest in CalAmp Corp. (NASDAQ:CAMP) significantly increased during the second quarter as a total of 16 funds had stakes with an aggregate worth of $45.18 million in the company at the end of June, representing about 6.8% of the company’s market cap as compared to 10 funds with $13.54 million held in shares at the end of March. Columbus Circle Investors, managed by Donald Chiboucis, heads our list of CalAmp Corp. (NASDAQ:CAMP)’s stockholders as it owns some 655,600 shares valued at $11.97 million.

Disclosure: None