International Business Machines Corp. (NYSE:IBM) is down slightly year-to-date, and there look to be better options in the IT space. Hedge funds are standing pat, though.
Now, according to many investors, hedge funds are assumed to be bloated, outdated financial vehicles of a forgotten age. Although there are more than 8,000 hedge funds in operation currently, Insider Monkey focuses on the moguls of this group, about 525 funds. Analysts calculate that this group has its hands on most of the smart money's total capital, and by watching their best stock picks, we've discovered a number of investment strategies that have historically outpaced the S&P 500. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year 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 topped the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).
Just as key, optimistic insider trading activity is a second way to look at the investments you're interested in. Obviously, there are lots of incentives for an insider to downsize shares of his or her company, but only one, very clear reason why they would buy. Plenty of academic studies have demonstrated the useful potential of this strategy if investors understand what to do (learn more here).
Thus, let's analyze the newest info surrounding International Business Machines Corp. (NYSE:IBM).
Heading into Q3, a total of 49 of the hedge funds we track held long positions in this stock, a change of 0% from the first quarter. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably.
Since International Business Machines Corp. (NYSE:IBM) has witnessed bearish sentiment from upper-tier hedge fund managers, logic holds that there lies a certain "tier" of money managers who were dropping their positions entirely in Q1. Interestingly, Louis Bacon's Moore Global Investments cut the biggest position of the "upper crust" of funds we key on, comprising an estimated $74.7 million in stock. Joe DiMenna's fund, ZWEIG DIMENNA PARTNERS, also cut its stock, about $20.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Bullish insider trading is most useful when the primary stock in question has seen transactions within the past half-year. Over the latest six-month time period, International Business Machines Corp. (NYSE:IBM) has experienced zero unique insiders purchasing, and 11 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 International Business Machines Corp. (NYSE:IBM). These stocks are Silicon Graphics International Corp (NASDAQ:SGI), Cray Inc. (NASDAQ:CRAY), Teradata Corporation (NYSE:TDC), and Hewlett-Packard Company (NYSE:HPQ). This group of stocks are the members of the diversified computer systems industry and their market caps are similar to IBM's market cap.