Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Check Point Software Technologies Ltd. (NASDAQ:CHKP) from the perspective of those elite funds.
Hedge fund interest in Check Point Software Technologies Ltd. (NASDAQ:CHKP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Global Payments Inc (NYSE:GPN), Nucor Corporation (NYSE:NUE), and ResMed Inc. (NYSE:RMD) to gather more data points.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a peek at the key hedge fund action encompassing Check Point Software Technologies Ltd. (NASDAQ:CHKP).
How have hedgies been trading Check Point Software Technologies Ltd. (NASDAQ:CHKP)?
Heading into the first quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHKP over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in Check Point Software Technologies Ltd. (NASDAQ:CHKP), which was worth $228.8 million at the end of the third quarter. On the second spot was Alyeska Investment Group which amassed $154.1 million worth of shares. Moreover, D E Shaw, Renaissance Technologies, and Marshall Wace LLP were also bullish on Check Point Software Technologies Ltd. (NASDAQ:CHKP), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Check Point Software Technologies Ltd. (NASDAQ:CHKP) has faced falling interest from the smart money, it’s safe to say that there exists a select few hedge funds that elected to cut their entire stakes in the third quarter. Interestingly, Malcolm Fairbairn’s Ascend Capital dumped the largest position of the “upper crust” of funds watched by Insider Monkey, valued at close to $17.6 million in call options. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its call options, about $5.9 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Check Point Software Technologies Ltd. (NASDAQ:CHKP) but similarly valued. These stocks are Global Payments Inc (NYSE:GPN), Nucor Corporation (NYSE:NUE), ResMed Inc. (NYSE:RMD), and Aptiv PLC (NYSE:APTV). This group of stocks’ market caps match CHKP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GPN | 27 | 476456 | 1 |
| NUE | 26 | 393481 | -5 |
| RMD | 22 | 394216 | -2 |
| APTV | 44 | 715224 | 1 |
| Average | 29.75 | 494844 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $495 million. That figure was $728 million in CHKP’s case. Aptiv PLC (NYSE:APTV) is the most popular stock in this table. On the other hand ResMed Inc. (NYSE:RMD) is the least popular one with only 22 bullish hedge fund positions. Check Point Software Technologies Ltd. (NASDAQ:CHKP) is not the least popular stock in this group and hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on CHKP as the stock returned 22.4% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
