Is Rambus Inc. (RMBS) Going to Burn These Hedge Funds?

“Value has performed relatively poorly since the 2017 shift, but we believe challenges to the S&P 500’s dominance are mounting and resulting active opportunities away from the index are growing. At some point, this fault line will break, likely on the back of rising rates, and all investors will be reminded that the best time to diversify away from the winners is when it is most painful. The bargain of capturing long-term value may be short-term pain, but enough is eventually enough and it comes time to harvest the benefits.,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Rambus Inc. (NASDAQ:RMBS) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Rambus Inc. (NASDAQ:RMBS) undervalued? Money managers are becoming more confident. The number of bullish hedge fund positions went up by 2 lately. Our calculations also showed that rmbs isn’t among the 30 most popular stocks among hedge funds.

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 18 percentage points since May 2014 through December 3, 2018 (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.

John Overdeck of Two Sigma

We’re going to take a look at the latest hedge fund action regarding Rambus Inc. (NASDAQ:RMBS).

Hedge fund activity in Rambus Inc. (NASDAQ:RMBS)

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in RMBS heading into this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

No of Hedge Funds with RMBS Positions

No of Hedge Funds with RMBS Positions

The largest stake in Rambus Inc. (NASDAQ:RMBS) was held by Renaissance Technologies, which reported holding $39.2 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $7.4 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and GLG Partners.

As aggregate interest increased, key hedge funds have jumped into Rambus Inc. (NASDAQ:RMBS) headfirst. BlueCrest Capital Mgmt., managed by Michael Platt and William Reeves, established the most outsized position in Rambus Inc. (NASDAQ:RMBS). BlueCrest Capital Mgmt. had $0.4 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is Benjamin A. Smith’s Laurion Capital Management.

Let’s check out hedge fund activity in other stocks similar to Rambus Inc. (NASDAQ:RMBS). These stocks are Resolute Forest Products Inc (NYSE:RFP), Retrophin Inc (NASDAQ:RTRX), TriCo Bancshares (NASDAQ:TCBK), and Weis Markets, Inc. (NYSE:WMK). This group of stocks’ market values match RMBS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RFP 22 534440 1
RTRX 22 482411 3
TCBK 11 46732 0
WMK 15 89216 1
Average 17.5 288200 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $288 million. That figure was $64 million in RMBS’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand TriCo Bancshares (NASDAQ:TCBK) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Rambus Inc. (NASDAQ:RMBS) is even less popular than TCBK. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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