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Here’s What Hedge Funds Think About PDF Solutions, Inc. (PDFS)

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Is PDF Solutions, Inc. (NASDAQ:PDFS) ready to rally soon? Money managers are getting less optimistic. The number of bullish hedge fund bets shrunk by 2 in recent months. Our calculations also showed that pdfs isn’t among the 30 most popular stocks among hedge funds.

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 40 percentage points since May 2014 through May 30, 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.

Eric Singer VIEX Capital

Eric Singer of VIEX Capital

We’re going to take a peek at the new hedge fund action surrounding PDF Solutions, Inc. (NASDAQ:PDFS).

What have hedge funds been doing with PDF Solutions, Inc. (NASDAQ:PDFS)?

At Q1’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in PDFS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PDFS Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, VIEX Capital Advisors, managed by Eric Singer, holds the biggest position in PDF Solutions, Inc. (NASDAQ:PDFS). VIEX Capital Advisors has a $21.8 million position in the stock, comprising 19.4% of its 13F portfolio. The second largest stake is held by Divisar Capital, managed by Steven Baughman, which holds a $13.6 million position; 4.5% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions contain Chuck Royce’s Royce & Associates, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Overdeck and David Siegel’s Two Sigma Advisors.

Judging by the fact that PDF Solutions, Inc. (NASDAQ:PDFS) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few funds that elected to cut their full holdings in the third quarter. At the top of the heap, Bradley LouisáRadoff’s Fondren Management sold off the biggest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $0.7 million in stock. Cliff Asness’s fund, AQR Capital Management, also cut its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to PDF Solutions, Inc. (NASDAQ:PDFS). We will take a look at Bar Harbor Bankshares (NYSE:BHB), Insteel Industries Inc (NASDAQ:IIIN), Braemar Hotels & Resorts Inc. (NYSE:BHR), and New Frontier Corp (NYSE:NFC). This group of stocks’ market values are closest to PDFS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHB 3 16489 0
IIIN 8 52127 -4
BHR 13 69930 1
NFC 13 64688 -1
Average 9.25 50809 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $46 million in PDFS’s case. Braemar Hotels & Resorts Inc. (NYSE:BHR) is the most popular stock in this table. On the other hand Bar Harbor Bankshares (NYSE:BHB) is the least popular one with only 3 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on PDFS, though not to the same extent, as the stock returned 4% during the same time frame and outperformed the market as well.

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

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