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Is Limelight Networks, Inc. (LLNW) A Good Stock To Buy?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Limelight Networks, Inc. (NASDAQ:LLNW).

Is Limelight Networks, Inc. (NASDAQ:LLNW) worth your attention right now? The best stock pickers are taking a bearish view. The number of bullish hedge fund bets fell by 1 lately. Our calculations also showed that LLNW isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.

LLNW_nov2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the latest hedge fund action regarding Limelight Networks, Inc. (NASDAQ:LLNW).

How have hedgies been trading Limelight Networks, Inc. (NASDAQ:LLNW)?

At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in LLNW a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Carlo Cannell

More specifically, Cannell Capital was the largest shareholder of Limelight Networks, Inc. (NASDAQ:LLNW), with a stake worth $11.5 million reported as of the end of March. Trailing Cannell Capital was Renaissance Technologies, which amassed a stake valued at $6.4 million. AQR Capital Management, Royce & Associates, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified LLNW as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks similar to Limelight Networks, Inc. (NASDAQ:LLNW). These stocks are Rayonier Advanced Materials Inc (NYSE:RYAM), On Deck Capital Inc (NYSE:ONDK), USD Partners LP (NYSE:USDP), and Denison Mines Corp (NYSE:DNN). All of these stocks’ market caps are closest to LLNW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RYAM 23 57988 -1
ONDK 18 91532 -1
USDP 3 4457 -1
DNN 4 1703 0
Average 12 38920 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $34 million in LLNW’s case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand USD Partners LP (NYSE:USDP) is the least popular one with only 3 bullish hedge fund positions. Limelight Networks, Inc. (NASDAQ:LLNW) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on LLNW as the stock returned 12.2% during the same time frame and outperformed the market by an even larger margin.

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

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