Is NetScout Systems, Inc. (NTCT) A Good Stock To Buy?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards NetScout Systems, Inc. (NASDAQ:NTCT).

Hedge fund interest in NetScout Systems, Inc. (NASDAQ:NTCT) 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 CNO Financial Group Inc (NYSE:CNO), Qunar Cayman Islands Ltd (NASDAQ:QUNR), and Berry Plastics Group Inc (NYSE:BERY) to gather more data points.

Keeping this in mind, let’s take a gander at the fresh action encompassing NetScout Systems, Inc. (NASDAQ:NTCT).

What have hedge funds been doing with NetScout Systems, Inc. (NASDAQ:NTCT)?

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Tannenbaum’s Fir Tree has the largest position in NetScout Systems, Inc. (NASDAQ:NTCT), worth close to $159.5 million, accounting for 2.7% of its total 13F portfolio. Sitting at the No. 2 spot is Alan Fournier of Pennant Capital Management, with a $54.7 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish comprise Robert Pohly’s Samlyn Capital, Michael Doheny’s Freshford Capital Management and Ken Fisher’s Fisher Asset Management.

Intriguingly, Robert Henry Lynch’s Aristeia Capital dropped the largest stake of the 700 funds tracked by Insider Monkey, worth an estimated $80.9 million in call options, and Robert Henry Lynch’s Aristeia Capital was right behind this move, as the fund cut about $29.9 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

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. We will take a look at CNO Financial Group Inc (NYSE:CNO), Qunar Cayman Islands Ltd (NASDAQ:QUNR), Berry Plastics Group Inc (NYSE:BERY), and Autohome Inc (ADR) (NYSE:ATHM). All of these stocks’ market caps match NTCT’s market cap.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $681 million. That figure was $412 million in NTCT’s case. Berry Plastics Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand CNO Financial Group Inc (NYSE:CNO) is the least popular one with only 8 bullish hedge fund positions. NetScout Systems, Inc. (NASDAQ:NTCT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BERY might be a better candidate to consider a long position.