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Hedge Funds Starting To Get Bullish On QAD Inc. (QADA)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought QAD Inc. (NASDAQ:QADA) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

QAD Inc. (NASDAQ:QADA) shareholders have witnessed an increase in enthusiasm from smart money in recent months. QAD Inc. (NASDAQ:QADA) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 16 hedge funds in our database with QADA holdings at the end of March. Our calculations also showed that QADA 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).

Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s analyze the key hedge fund action regarding QAD Inc. (NASDAQ:QADA).

What have hedge funds been doing with QAD Inc. (NASDAQ:QADA)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in QADA a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is QADA A Good Stock To Buy?

The largest stake in QAD Inc. (NASDAQ:QADA) was held by Nantahala Capital Management, which reported holding $48.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $27.4 million position. Other investors bullish on the company included Harspring Capital Management, AltraVue Capital, and Royce & Associates. In terms of the portfolio weights assigned to each position AltraVue Capital allocated the biggest weight to QAD Inc. (NASDAQ:QADA), around 6.66% of its 13F portfolio. Harspring Capital Management is also relatively very bullish on the stock, earmarking 4.43 percent of its 13F equity portfolio to QADA.

Consequently, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in QAD Inc. (NASDAQ:QADA). Arrowstreet Capital had $2.6 million invested in the company at the end of the quarter. Brian C. Freckmann’s Lyon Street Capital also initiated a $0.8 million position during the quarter. The following funds were also among the new QADA investors: Greg Eisner’s Engineers Gate Manager and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks similar to QAD Inc. (NASDAQ:QADA). These stocks are BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), Vista Outdoor Inc (NYSE:VSTO), Accelerate Diagnostics Inc (NASDAQ:AXDX), Autolus Therapeutics plc (NASDAQ:AUTL), Amyris Inc (NASDAQ:AMRS), 3D Systems Corporation (NYSE:DDD), and Neenah Inc. (NYSE:NP). All of these stocks’ market caps are closest to QADA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCRX 26 250229 1
VSTO 22 186374 3
AXDX 13 51021 4
AUTL 13 49993 0
AMRS 16 141634 6
DDD 18 50869 0
NP 13 15298 0
Average 17.3 106488 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $127 million in QADA’s case. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is the most popular stock in this table. On the other hand Accelerate Diagnostics Inc (NASDAQ:AXDX) is the least popular one with only 13 bullish hedge fund positions. QAD Inc. (NASDAQ:QADA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for QADA is 56.2. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately QADA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on QADA were disappointed as the stock returned 2.4% in Q3 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.