Like the broader US stock market, technology stocks fell sharply during the first six weeks of 2016. Compared to the S&P500 index, which fell by 9%, the Dow Jones U.S. Technology Index fell by as much as 12.7% by mid-February, creating good opportunities to buy tech stocks on the cheap. Nonetheless, not all tech stocks attracted fresh investments during the slump, as some tech stocks registered notable declines in hedge fund ownership, despite some of them suffering severe drops in valuation, which should have theoretically made them more attractive. In this article we’ll take a look at five tech stocks that greatly lost their appeal in the eyes of the top hedge fund managers tracked by Insider Monkey.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
Operating Margins and Hedge Fund Support Shrinking at Proofpoint
A 45% depreciation in Proofpoint Inc (NASDAQ:PFPT) shares early in 2016 prompted hedge funds to distance themselves from the provider of data protection services. Whereas at the end of December 2015, 30 top hedge funds held the stock in their portfolios, by the end of March that number had fallen to 22, or approximately 3% of the funds tracked by Insider Monkey. Proofpoint Inc (NASDAQ:PFPT)’s revenue has been on the rise for the past four quarters, reaching $79 million for the three months ended March 31, 2016. The company also posted a loss of $31.7 million for the first quarter, or $0.09 per share when adjusted for one-time gains and costs. The other side of the coin shows decreasing operating margins amid growing revenue and increased competition in the segment. Ken Griffin‘s Citadel Investment Group dumped nearly 70% of its stake in Proofpoint Inc (NASDAQ:PFPT) during the first quarter, ending March with only 96,444 shares worth $5.18 million.
Security Solutions Provider Leaking Hedge Fund Support
The number of top hedge funds invested in Lifelock Inc (NYSE:LOCK) fell by nearly 50% to 16 throughout the first quarter, with those funds’ ownership amounting to 16.2% of the company’s common stock. The provider of security solutions has been on a good run lately, having posted solid growth numbers for the first quarter. Revenue rose by 18% year-over-year to $159.3 million, while membership increased by 11% to 4.3 million. An increase in marketing efforts led to a larger net loss however, with Lifelock Inc (NYSE:LOCK) having posted a loss of $11.7 million, or $0.06 per share on an adjusted basis. The company’s weak forward guidance has also put pressure on the stock. Lifelock said it expects second quarter earnings to range between $0.03 and $0.04 per share. Steve Cohen liquidated his investment in Lifelock Inc (NYSE:LOCK) during the first quarter, with his fund Point72 Asset Management selling off all 129,300 shares of the tech company that it held on December 31.
Turn the page to find out which three tech stocks hedge funds hated the most in the first quarter.