Is NetScout Systems, Inc. (NTCT) 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 NetScout Systems, Inc. (NASDAQ:NTCT).

Is NetScout Systems, Inc. (NASDAQ:NTCT) a buy right now? Prominent investors are getting more optimistic. The number of bullish hedge fund positions increased by 2 in recent months. Our calculations also showed that NTCT isn’t among the 30 most popular stocks among hedge funds (view the video below). NTCT was in 14 hedge funds’ portfolios at the end of June. There were 12 hedge funds in our database with NTCT holdings at the end of the previous quarter.
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.


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. Let’s view the latest hedge fund action surrounding NetScout Systems, Inc. (NASDAQ:NTCT).

What does smart money think about NetScout Systems, Inc. (NASDAQ:NTCT)?

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NTCT over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with NTCT Positions

Among these funds, Fisher Asset Management held the most valuable stake in NetScout Systems, Inc. (NASDAQ:NTCT), which was worth $64.9 million at the end of the second quarter. On the second spot was D E Shaw which amassed $21.6 million worth of shares. Moreover, Millennium Management, Citadel Investment Group, and Tudor Investment Corp were also bullish on NetScout Systems, Inc. (NASDAQ:NTCT), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key money managers have jumped into NetScout Systems, Inc. (NASDAQ:NTCT) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most valuable position in NetScout Systems, Inc. (NASDAQ:NTCT). Marshall Wace LLP had $2.9 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $1.6 million investment in the stock during the quarter. The other funds with brand new NTCT positions are Matthew Tewksbury’s Stevens Capital Management, Benjamin A. Smith’s Laurion Capital Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NetScout Systems, Inc. (NASDAQ:NTCT) but similarly valued. These stocks are Senior Housing Properties Trust (NASDAQ:SNH), Ladder Capital Corp (NYSE:LADR), Tenet Healthcare Corporation (NYSE:THC), and Groupon Inc (NASDAQ:GRPN). This group of stocks’ market caps resemble NTCT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNH 13 22338 -4
LADR 13 33091 -2
THC 30 669380 6
GRPN 24 391895 -2
Average 20 279176 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $279 million. That figure was $118 million in NTCT’s case. Tenet Healthcare Corporation (NYSE:THC) is the most popular stock in this table. On the other hand Senior Housing Properties Trust (NASDAQ:SNH) is the least popular one with only 13 bullish hedge fund positions. NetScout Systems, Inc. (NASDAQ:NTCT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately NTCT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NTCT investors were disappointed as the stock returned -9.2% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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