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Is Radware Ltd. (RDWR) A Good Stock To Buy?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Radware Ltd. (NASDAQ:RDWR) and determine whether hedge funds skillfully traded this stock.

Is Radware Ltd. (NASDAQ:RDWR) the right investment to pursue these days? Investors who are in the know were becoming less confident. The number of bullish hedge fund positions decreased by 3 lately. Our calculations also showed that RDWR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). RDWR was in 10 hedge funds’ portfolios at the end of March. There were 13 hedge funds in our database with RDWR holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

TUDOR INVESTMENT CORP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the latest hedge fund action encompassing Radware Ltd. (NASDAQ:RDWR).

What does smart money think about Radware Ltd. (NASDAQ:RDWR)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in RDWR 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.

Is RDWR A Good Stock To Buy?

The largest stake in Radware Ltd. (NASDAQ:RDWR) was held by Rima Senvest Management, which reported holding $85.2 million worth of stock at the end of September. It was followed by Cadian Capital with a $79.8 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to Radware Ltd. (NASDAQ:RDWR), around 9.97% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, setting aside 3.92 percent of its 13F equity portfolio to RDWR.

Because Radware Ltd. (NASDAQ:RDWR) has witnessed a decline in interest from hedge fund managers, we can see that there is a sect of hedge funds that decided to sell off their positions entirely heading into Q4. Intriguingly, Noam Gottesman’s GLG Partners sold off the largest investment of all the hedgies followed by Insider Monkey, worth close to $2.5 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Radware Ltd. (NASDAQ:RDWR). We will take a look at Materialise NV (NASDAQ:MTLS), CorVel Corporation (NASDAQ:CRVL), Silk Road Medical, Inc. (NASDAQ:SILK), and Getty Realty Corp. (NYSE:GTY). This group of stocks’ market caps match RDWR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTLS 3 6283 0
CRVL 12 87568 -2
SILK 12 70702 0
GTY 9 68153 0
Average 9 58177 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $222 million in RDWR’s case. CorVel Corporation (NASDAQ:CRVL) is the most popular stock in this table. On the other hand Materialise NV (NASDAQ:MTLS) is the least popular one with only 3 bullish hedge fund positions. Radware Ltd. (NASDAQ:RDWR) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately RDWR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RDWR were disappointed as the stock returned 12% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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