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Hedge Funds Have Never Been This Bullish On F5 Networks, Inc. (FFIV)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding F5 Networks, Inc. (NASDAQ:FFIV) and determine whether hedge funds had an edge regarding this stock.

Is F5 Networks, Inc. (NASDAQ:FFIV) the right pick for your portfolio? Money managers were taking an optimistic view. The number of long hedge fund positions inched up by 7 lately. F5 Networks, Inc. (NASDAQ:FFIV) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FFIV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 32 hedge funds in our database with FFIV positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a look at the recent hedge fund action regarding F5 Networks, Inc. (NASDAQ:FFIV).

How are hedge funds trading F5 Networks, Inc. (NASDAQ:FFIV)?

At the end of the second quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in FFIV a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is FFIV A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in F5 Networks, Inc. (NASDAQ:FFIV), which was worth $437.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $102.6 million worth of shares. D E Shaw, Holocene Advisors, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Shellback Capital allocated the biggest weight to F5 Networks, Inc. (NASDAQ:FFIV), around 2.66% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, designating 1.04 percent of its 13F equity portfolio to FFIV.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, established the largest position in F5 Networks, Inc. (NASDAQ:FFIV). Holocene Advisors had $83.8 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also initiated a $25.6 million position during the quarter. The following funds were also among the new FFIV investors: George McCabe’s Portolan Capital Management, Donald Sussman’s Paloma Partners, and James Dondero’s Highland Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as F5 Networks, Inc. (NASDAQ:FFIV) but similarly valued. These stocks are Shaw Communications Inc (NYSE:SJR), CyrusOne Inc (NASDAQ:CONE), Beyond Meat, Inc. (NASDAQ:BYND), Henry Schein, Inc. (NASDAQ:HSIC), Ciena Corporation (NASDAQ:CIEN), Chegg Inc (NYSE:CHGG), and Mylan Inc. (NASDAQ:MYL). This group of stocks’ market valuations match FFIV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SJR 13 129866 1
CONE 25 483347 -6
BYND 29 253737 16
HSIC 33 1057007 -2
CIEN 32 369502 1
CHGG 45 1004897 11
MYL 46 1646058 -3
Average 31.9 706345 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $706 million. That figure was $1074 million in FFIV’s case. Mylan Inc. (NASDAQ:MYL) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 13 bullish hedge fund positions. F5 Networks, Inc. (NASDAQ:FFIV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FFIV is 79.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately FFIV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FFIV were disappointed as the stock returned -5.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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