As it is widely known, the financial turmoil in the world’s second-largest economy, China, and the concerns about the timing of the Federal Reserve’s interest rate hike have triggered several massive selloffs in the U.S equities markets lately. However, the companies’ fundamentals have not inherently changed over this time span, whereas the return dispersion has fallen significantly in tandem with the plummeting stock market. The Goldman Sachs Group Inc. (NYSE:GS) recently disclosed a list of 25 stocks that have high dispersion scores, and all of which also carry significant potential to the upside based on Goldman Sachs’ price target on them. According to the investment bank’s analysts, the dispersion scores “reflect a combination of each stock’s firm-specific risk and micro-sensitivity”. As a result, these stocks with high dispersion scores are more likely to respond to firm-specific news rather than global macro economic news than those with lower dispersion scores. The following article will cover the three tech stocks pinpointed by Goldman Sachs in its piece and will also discuss the hedge fund sentiment on each of them.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
3. Juniper Networks Inc. (NYSE:JNPR)
Investors with Long Positions (as of June 30): 45
Aggregate Value of Investors’ Holdings (as of June 30): $1.83 Billion
Let’s start our discussion with Juniper Networks Inc. (NYSE:JNPR), which was assigned a dispersion rate of 3.0 and an upside potential to Goldman Sachs’ price target of 32%. The number of hedge funds monitored by Insider Monkey with positions in the stock was up by four during the second quarter. Similarly, the value of their investments climbed by $205.38 million during the three-month period. The recent broader market pullback has pressed Juniper’s shares lower, but they have still managed to deliver a return of over 13% year-to-date. On Tuesday, Juniper and Aerohive Networks Inc. (NYSE:HIVE) decided to form a technology alliance in order to provide a cloud-managed, wired and wireless solution to a wide range of sectors. The combination of Aerohive’s cloud Wi-Fi solutions and Juniper’s performance switches, comprehensive network management, and security solutions is set to assist enterprises in simplifying network planning and deployment. Paul Singer’s Elliott Management represents the largest equity holder of Juniper Networks Inc. (NYSE:JNPR) within our database, holding a 34.25 million share-stake.