Cloud computing has displayed exponential growth in the past few years and most tech experts believe that this growth is likely to continue for many years to come. According to estimates, the hybrid cloud space alone will grow to be a $91.74 billion market by 2021, from $33.28 billion in 2016, which would represent a compounded annual growth rate of 22.5%. Despite this remarkable expected growth, there was a contradictory phenomenon we observed while conducting our extensive research on the portfolios of the over 800 funds we track; hedge funds were reducing their exposure to many cloud computing stocks in the first quarter of 2016. While this could just be a one-off phenomenon where hedge funds felt less bullish about the space, or simply wanted to devote resources to other sectors, it is still worth analyzing. Therefore, in this article, we will take a look at five stocks from the cloud computing space which saw the largest drops in their popularity during the first quarter among the hedge funds in our database.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
F5 Networks, Inc. (NASDAQ:FFIV)
– Investors with long positions (as of March 31) : 28
– Aggregate value of investors’ holdings (as of March 31): $1 Billion
Let’s start with F5 Networks, Inc. (NASDAQ:FFIV), which saw its ownership among funds in our system drop by five during the first quarter, though the aggregate value of their holdings in it rose by $238 million during the same period, some of which can be attributed to the 9% rise in F5 Networks, Inc. (NASDAQ:FFIV)’s stock during the quarter. Though shares of the developer of application delivery services have appreciated by 12% so far in 2016, they are still down by 14% over the last year. Since the company is currently trading at a trailing P/E of 21.54, lower than the industry average of 29.26, and is one of the few cloud computing companies that is highly profitable, most analysts expect its stock to perform well going forward. This includes analysts at Drexel Hamilton, who on April 21 reiterated their ‘Overweight’ rating and $145 price target on the stock. Billionaire Jim Simons‘ Renaissance Technologies upped its stake in F5 Networks by 6% to 1.08 million shares during the first quarter.
Citrix Systems, Inc. (NASDAQ:CTXS)
– Investors with long positions (as of March 31) : 40
– Aggregate value of investors’ holdings (as of March 31): $1.44 Billion
Citrix Systems, Inc. (NASDAQ:CTXS) is one of the purest plays one can find in the cloud space, as the company’s primary business revolves around selling products and services that enable the delivery of applications and data over various types of clouds, to virtually any type of device. Though its stock was stuck in the $60-to-$80 range for much of the last five years, it has recently broken above that range convincingly and is trading near to its 52-week high. Nonetheless, the number of hedge funds in our database that held a stake in Citrix Systems, Inc. (NASDAQ:CTXS) dropped by five in the first quarter, while the aggregate value of their holdings in it fell by about $30 million despite shares gaining about 4% during the quarter. Funds that reduced their stake in the company during the first quarter included Craig C. Albert‘s Sheffield Asset Management, which cut its holding down by 38% to 226,788 shares.
Be wary of three more cloud computing stocks that hedge funds were selling in the first quarter; check them out on the next page.