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How Did Seagate Technology plc (STX) Perform In Comparison to Hedge Fund Favorites in 2019?

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Seagate Technology plc (NASDAQ:STX) and compare its performance against hedge funds’ favorite stocks.

Is Seagate Technology plc (NASDAQ:STX) worth your attention right now? The best stock pickers are taking a bullish view. The number of bullish hedge fund positions inched up by 3 in recent months. Our calculations also showed that STX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). STX was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with STX positions at the end of the previous quarter.

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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s take a look at the key hedge fund action encompassing Seagate Technology plc (NASDAQ:STX).

What does smart money think about Seagate Technology plc (NASDAQ:STX)?

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in STX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STX A Good Stock To Buy?

More specifically, ValueAct Capital was the largest shareholder of Seagate Technology plc (NASDAQ:STX), with a stake worth $1697.3 million reported as of the end of September. Trailing ValueAct Capital was Renaissance Technologies, which amassed a stake valued at $227.9 million. Two Sigma Advisors, AQR Capital Management, 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 ValueAct Capital allocated the biggest weight to Seagate Technology plc (NASDAQ:STX), around 18.31% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, dishing out 5.35 percent of its 13F equity portfolio to STX.

As aggregate interest increased, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Seagate Technology plc (NASDAQ:STX). Arrowstreet Capital had $52.4 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $6.2 million position during the quarter. The following funds were also among the new STX investors: Peter Muller’s PDT Partners, David Costen Haley’s HBK Investments, and Jeffrey Talpins’s Element Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Seagate Technology plc (NASDAQ:STX) but similarly valued. These stocks are UDR, Inc. (NYSE:UDR), Banco de Chile (NYSE:BCH), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and Live Nation Entertainment, Inc. (NYSE:LYV). This group of stocks’ market valuations are closest to STX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UDR 21 560389 5
BCH 4 66263 -2
TTWO 57 1596551 -3
LYV 40 1097828 1
Average 30.5 830258 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $830 million. That figure was $2311 million in STX’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 4 bullish hedge fund positions. Seagate Technology plc (NASDAQ:STX) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on STX as the stock returned 62.1% in 2019 and outclassed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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