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Rackspace Hosting, Inc. (NYSE:RAX): Hedge Funds and Insiders Are Bearish, What Should You Do? – Xerox Corporation (NYSE:XRX), Gartner Inc (NYSE:IT)

Rackspace Hosting, Inc. (NYSE:RAX) has experienced a decrease in enthusiasm from smart money of late.

Rackspace Hosting, Inc. (NYSE:RAX)

According to most traders, hedge funds are assumed to be unimportant, outdated financial vehicles of yesteryear. While there are greater than 8000 funds trading at present, we look at the aristocrats of this group, close to 450 funds. It is widely believed that this group oversees most of the smart money’s total asset base, and by monitoring their top stock picks, we have found a number of investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 25 percentage points in 6.5 month (check out a sample of our picks).

Equally as important, optimistic insider trading sentiment is another way to parse down the financial markets. As the old adage goes: there are a variety of stimuli for a bullish insider to drop shares of his or her company, but only one, very simple reason why they would buy. Many empirical studies have demonstrated the useful potential of this tactic if “monkeys” know where to look (learn more here).

Now, we’re going to take a look at the key action surrounding Rackspace Hosting, Inc. (NYSE:RAX).

How have hedgies been trading Rackspace Hosting, Inc. (NYSE:RAX)?

In preparation for this year, a total of 13 of the hedge funds we track were long in this stock, a change of -19% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings meaningfully.

When looking at the hedgies we track, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in Rackspace Hosting, Inc. (NYSE:RAX). Citadel Investment Group has a $53 million position in the stock, comprising 0.1% of its 13F portfolio. On Citadel Investment Group’s heels is Cupps Capital Management, managed by Drew Cupps, which held a $26 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedgies that hold long positions include Bill Miller’s Legg Mason Capital Management, Steven Cohen’s SAC Capital Advisors and Richard Driehaus’s Driehaus Capital.

Judging by the fact that Rackspace Hosting, Inc. (NYSE:RAX) has witnessed bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedge funds who were dropping their positions entirely in Q4. It’s worth mentioning that Christian Leone’s Luxor Capital Group said goodbye to the biggest position of the “upper crust” of funds we monitor, valued at close to $33 million in stock.. John Murphy’s fund, Alydar Capital, also dumped its stock, about $3 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds in Q4.

What have insiders been doing with Rackspace Hosting, Inc. (NYSE:RAX)?

Bullish insider trading is best served when the company in focus has experienced transactions within the past six months. Over the latest 180-day time period, Rackspace Hosting, Inc. (NYSE:RAX) has experienced zero unique insiders buying, and 14 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Rackspace Hosting, Inc. (NYSE:RAX). These stocks are NCR Corporation (NYSE:NCR), Xerox Corporation (NYSE:XRX), ServiceNow Inc (NYSE:NOW), Gartner Inc (NYSE:IT), and Computer Sciences Corporation (NYSE:CSC). This group of stocks are the members of the information technology services industry and their market caps resemble RAX’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
NCR Corporation (NYSE:NCR) 27 0 5
Xerox Corporation (NYSE:XRX) 34 0 3
ServiceNow Inc (NYSE:NOW) 16 0 11
Gartner Inc (NYSE:IT) 10 0 8
Computer Sciences Corporation (NYSE:CSC) 24 0 1

With the returns demonstrated by Insider Monkey’s strategies, everyday investors must always pay attention to hedge fund and insider trading activity, and Rackspace Hosting, Inc. (NYSE:RAX) applies perfectly to this mantra.

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