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Should You Sell PDF Solutions, Inc. (PDFS)?

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To many traders, hedge funds are viewed as bloated, old financial vehicles of a forgotten age. Although there are over 8,000 hedge funds with their doors open currently, this site looks at the aristocrats of this group, close to 525 funds. Analysts calculate that this group has its hands on the majority of the smart money’s total capital, and by watching their highest performing picks, we’ve deciphered a few investment strategies that have historically outpaced the S&P 500. Our small-cap hedge fund strategy outperformed 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 beaten the S&P 500 index by 33 percentage points in 11 months (find the details here).

Equally as necessary, bullish insider trading activity is another way to look at the world of equities. Obviously, there are many motivations for a corporate insider to sell shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Many empirical studies have demonstrated the valuable potential of this tactic if “monkeys” know where to look (learn more here).

Thus, let’s study the newest info about PDF Solutions, Inc. (NASDAQ:PDFS).

PDF Solutions, Inc. (NASDAQ:PDFS)

What have hedge funds been doing with PDF Solutions, Inc. (NASDAQ:PDFS)?

In preparation for the third quarter, a total of 10 of the hedge funds we track were long in this stock, a change of 0% from the first quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully.

When using filings from the hedgies we track, Spencer M. Waxman’s Shannon River Fund Management had the most valuable position in PDF Solutions, Inc. (NASDAQ:PDFS), worth close to $26.6 million, accounting for 3.2% of its total 13F portfolio. Coming in second is Jim Simons of Renaissance Technologies, with a $4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism include Louis Navellier’s Navellier & Associates, Robert B. Gillam’s McKinley Capital Management and Richard Driehaus’s Driehaus Capital.

Because PDF Solutions, Inc. (NASDAQ:PDFS) has witnessed declining interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that elected to cut their entire stakes last quarter. Interestingly, Neil Chriss’s Hutchin Hill Capital dumped the largest investment of the 450+ funds we monitor, worth an estimated $0.3 million in stock, and Drew Cupps of Cupps Capital Management was right behind this move, as the fund said goodbye to about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Insider trading activity in PDF Solutions, Inc. (NASDAQ:PDFS)

Legal insider trading, particularly when it’s bullish, is best served when the company in focus has seen transactions within the past 180 days. Over the last 180-day time frame, PDF Solutions, Inc. (NASDAQ:PDFS) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll go over the relationship between both of these indicators in other stocks similar to PDF Solutions, Inc. (NASDAQ:PDFS). These stocks are Mentor Graphics Corp (NASDAQ:MENT), ACI Worldwide Inc (NASDAQ:ACIW), Tyler Technologies, Inc. (NYSE:TYL), ScanSource, Inc. (NASDAQ:SCSC), and Systemax Inc. (NYSE:SYX). This group of stocks are the members of the technical & system software industry and their market caps are similar to PDFS’s market cap.

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