Are Cybersecurity Stocks Falling Out of Favor With Hedge Funds?

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A high number of companies and governments across the globe have been channeling vast amounts of capital into their corporate technology budgets in an attempt to keep their names out of high-profile security-breach headlines. Scandalous high-profile hacks usually serve as a trigger or a reminder to most companies to spend even more capital on security. However, cybersecurity valuations have been smacked-around earlier this year due to worries about high valuation metrics, competitive threats, as well as decelerating enterprise spending. Nonetheless, growth in cybersecurity spending will most likely keep growing in the years ahead, as cybersecurity is seen as one of the biggest concerns in today’s environment, so security will continue to be a top priority in companies’ technology budgets. Having this in mind, let’s have a look at the hedge fund sentiment towards five favorite cybersecurity stocks to get an idea about how the smart money industry feels about the highly-important cybersecurity segment.

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At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5. Fortinet Inc. (NASDAQ:FTNT)

– Investors with long positions as of March 31: 27

– Aggregate value of investors’ long positions as of March 31: $274.55 Million

There were 27 hedge funds tracked by Insider Monkey with long positions in Fortinet Inc. (NASDAQ:FTNT) at the end of the March quarter, as compared with 25 funds recorded three months earlier. Meanwhile, the overall value of those long positions rose to $274.55 million from $201.86 million during the quarter. The 27 funds invested in the provider of cybersecurity solutions amassed roughly 5% of its outstanding common stock. The network-security company has seen its market value gain nearly 11% since the beginning of 2016, partly owing to the stronger-than-expected first-quarter earnings report. Fortinet’s revenue for the first quarter of the year grew 34% year-over-year to $284.58 million due to greater sales volumes in its FortiGate product family. The company is also accelerating the pace of hiring and investments to expand its sales coverage, marketing capabilities, as well as develop new products, which resulted in a 43% increase operating expenses. Steven Cohen’s Point72 Asset Management acquired a new stake of 757,400 shares of Fortinet Inc. (NASDAQ:FTNT) during the March quarter.

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