Hedge Funds Have Never Been Less Bullish On PDF Solutions, Inc. (PDFS)

Is PDF Solutions, Inc. (NASDAQ:PDFS) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is PDF Solutions, Inc. (NASDAQ:PDFS) the right pick for your portfolio? The best stock pickers are getting less optimistic. The number of long hedge fund bets went down by 1 in recent months. Our calculations also showed that PDFS isn’t among the 30 most popular stocks among hedge funds (see the video below). PDFS was in 8 hedge funds’ portfolios at the end of June. There were 9 hedge funds in our database with PDFS holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the fresh hedge fund action surrounding PDF Solutions, Inc. (NASDAQ:PDFS).

How have hedgies been trading PDF Solutions, Inc. (NASDAQ:PDFS)?

Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PDFS over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Chuck Royce

More specifically, Divisar Capital was the largest shareholder of PDF Solutions, Inc. (NASDAQ:PDFS), with a stake worth $11.9 million reported as of the end of March. Trailing Divisar Capital was Royce & Associates, which amassed a stake valued at $6.5 million. Citadel Investment Group, Millennium Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that PDF Solutions, Inc. (NASDAQ:PDFS) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of funds that elected to cut their positions entirely in the second quarter. It’s worth mentioning that Eric Singer’s VIEX Capital Advisors sold off the biggest stake of the 750 funds followed by Insider Monkey, totaling about $21.8 million in call options. Eric Singer’s fund, VIEX Capital Advisors, also dropped its call options, about $0.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PDF Solutions, Inc. (NASDAQ:PDFS) but similarly valued. These stocks are Flexion Therapeutics Inc (NASDAQ:FLXN), BioSpecifics Technologies Corp. (NASDAQ:BSTC), The Lovesac Company (NASDAQ:LOVE), and Newtek Business Services, Corp. (NASDAQ:NEWT). This group of stocks’ market values match PDFS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLXN 15 112021 0
BSTC 11 55210 -1
LOVE 10 45613 2
NEWT 5 6595 -1
Average 10.25 54860 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $25 million in PDFS’s case. Flexion Therapeutics Inc (NASDAQ:FLXN) is the most popular stock in this table. On the other hand Newtek Business Services, Corp.(NASDAQ:NEWT) is the least popular one with only 5 bullish hedge fund positions. PDF Solutions, Inc. (NASDAQ:PDFS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PDFS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PDFS investors were disappointed as the stock returned -0.4% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

Disclosure: None. This article was originally published at Insider Monkey.