Brocade Communications Systems, Inc. (NASDAQ:BRCD) took a big after-hours hit yesterday which has carried into today’s trading session, as the stock is down by 7.93% today. At issue with investors is the company’s less-than-stellar guidance for the first quarter of the 2016 fiscal year that it offered yesterday, which prompted JPMorgan Chase & Co. (NYSE:JPM) to downgrade the stock to ‘Neutral’ from ‘Overweight’ and lower its price target on the stock to $9 from $14. Among other things, JP Morgan analyst Rod Hall noted that Brocade is nearing the end of a lucrative product cycle, and that there appears to be weakening demand for its enterprise IT services. The company reported fiscal fourth quarter revenue of $589 million, a 4% year-over-year increase, while its earnings improved to $0.20 per share, up by $0.01. However, its project earnings, revenue and margins for the fiscal first quarter of 2016 all came in below estimates. Does the stock make for a good buy as it hits it lowest point in over a year? Let’s see how top investors have been trading the stock lately to see.
Prominent investors are in a pessimistic mood when it comes to Brocade Communications. The number of long hedge fund bets were cut by 1 in recent months. At the end of this article we will also compare Brocade Communications Systems, Inc. (NASDAQ:BRCD) to other stocks including VCA Antech Inc (NASDAQ:WOOF), Investors Bancorp, Inc. (NASDAQ:ISBC), and King Digital Entertainment PLC (NYSE:KING) to get a better sense of its popularity.
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In today’s marketplace there are a multitude of methods market participants use to evaluate their holdings. A couple of the most innovative methods are hedge fund and insider trading sentiment. our experts have shown that, historically, those who follow the best picks of the elite hedge fund managers can outclass their index-focused peers by a healthy margin (see the details here).
Keeping this in mind, we’re going to review the new action surrounding Brocade Communications Systems, Inc. (NASDAQ:BRCD).
How are hedge funds trading Brocade Communications Systems, Inc. (NASDAQ:BRCD)?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 3% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’ AQR Capital Management has the most valuable position in Brocade Communications Systems, Inc. (NASDAQ:BRCD), worth close to $156.6 million, corresponding to 0.3% of its total 13F portfolio. The second-most bullish fund is Citadel Investment Group, led by Ken Griffin, holding a $96.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions comprise Joel Greenblatt’s Gotham Asset Management, Chuck Royce’s Royce & Associates, and Israel Englander’s Millennium Management.
Since Brocade Communications Systems, Inc. (NASDAQ:BRCD) has experienced a declination in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that elected to cut their entire stakes last quarter. Intriguingly, Nick Niell’s Arrowgrass Capital Partners cut the biggest stake of all the hedgies watched by Insider Monkey, comprising about $9.3 million in stock. Clint Carlson’s fund, Carlson Capital, also cut its stock, about $4.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 fund last quarter.
Let’s go over hedge fund activity in other stocks similar to Brocade Communications Systems, Inc. (NASDAQ:BRCD). We will take a look at VCA Antech Inc (NASDAQ:WOOF), Investors Bancorp, Inc. (NASDAQ:ISBC), King Digital Entertainment PLC (NYSE:KING), and Orbital ATK Inc (NYSE:OA). This group of stocks’ market valuations are closest to Brocade Communications Systems, Inc. (NASDAQ:BRCD)’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WOOF | 38 | 839129 | 8 |
| ISBC | 26 | 689935 | -8 |
| KING | 18 | 303994 | -6 |
| OA | 33 | 756743 | 3 |
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $647 million. That figure was $601 million in Brocade Communications Systems, Inc. (NASDAQ:BRCD)’s case. VCA Antech Inc (NASDAQ:WOOF) is the most popular stock in this table. On the other hand King Digital Entertainment PLC (NYSE:KING) is the least popular one with only 18 bullish hedge fund positions. Brocade Communications Systems, Inc. (NASDAQ:BRCD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard VCA Antech Inc might be a better candidate to consider a long position in at this time.
