Is Seagate Technology plc (STX) Going to Burn These Hedge Funds?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Seagate Technology plc (NASDAQ:STX).

Seagate Technology plc (NASDAQ:STX) investors should pay attention to a decrease in hedge fund interest of late. Seagate Technology plc (NASDAQ:STX) was in 27 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 38. There were 30 hedge funds in our database with STX holdings at the end of December. Our calculations also showed that STX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 percentage points since March 2017 (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.


Jeffrey Ubben of ValueAct Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to analyze the new hedge fund action regarding Seagate Technology plc (NASDAQ:STX).

Do Hedge Funds Think STX Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STX over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STX A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, ValueAct Capital, managed by Jeffrey Ubben, holds the number one position in Seagate Technology plc (NASDAQ:STX). ValueAct Capital has a $1.7661 billion position in the stock, comprising 20.6% of its 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $55.7 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and Jeremy Hosking’s Hosking Partners. In terms of the portfolio weights assigned to each position ValueAct Capital allocated the biggest weight to Seagate Technology plc (NASDAQ:STX), around 20.61% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, designating 3.05 percent of its 13F equity portfolio to STX.

Seeing as Seagate Technology plc (NASDAQ:STX) has faced falling interest from the entirety of the hedge funds we track, we can see that there were a few funds that decided to sell off their positions entirely heading into Q2. It’s worth mentioning that Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors dropped the biggest stake of the 750 funds followed by Insider Monkey, worth close to $3.8 million in stock, and Qing Li’s Sciencast Management was right behind this move, as the fund dumped about $3.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q2.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Seagate Technology plc (NASDAQ:STX) but similarly valued. These stocks are CMS Energy Corporation (NYSE:CMS), Waters Corporation (NYSE:WAT), Essex Property Trust Inc (NYSE:ESS), Warner Music Group Corp. (NASDAQ:WMG), Logitech International SA (NASDAQ:LOGI), Extra Space Storage, Inc. (NYSE:EXR), and CureVac N.V. (NASDAQ:CVAC). This group of stocks’ market values are closest to STX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMS 28 955427 4
WAT 34 2331723 4
ESS 30 196855 5
WMG 27 839309 -2
LOGI 15 311298 -6
EXR 28 185472 -1
CVAC 9 36312 0
Average 24.4 693771 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $694 million. That figure was $1971 million in STX’s case. Waters Corporation (NYSE:WAT) is the most popular stock in this table. On the other hand CureVac N.V. (NASDAQ:CVAC) is the least popular one with only 9 bullish hedge fund positions. Seagate Technology plc (NASDAQ:STX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STX is 59.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on STX, though not to the same extent, as the stock returned 15.5% since Q1 (through July 9th) and outperformed the market as well.

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