Is SWI A Good Stock To Buy Now?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards SolarWinds Corporation (NYSE:SWI).

Is SWI a good stock to buy now? The smart money was getting less bullish. The number of bullish hedge fund positions went down by 4 in recent months. SolarWinds Corporation (NYSE:SWI) was in 15 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that SWI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 19 hedge funds in our database with SWI positions at the end of the second quarter.

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

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Jim Simons founder of Renaissance Technologies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we’re going to review the new hedge fund action surrounding SolarWinds Corporation (NYSE:SWI).

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

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SWI over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Silver Lake Partners held the most valuable stake in SolarWinds Corporation (NYSE:SWI), which was worth $2646.6 million at the end of the third quarter. On the second spot was Sunriver Management which amassed $32.6 million worth of shares. Marshall Wace LLP, Islet Management, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Silver Lake Partners allocated the biggest weight to SolarWinds Corporation (NYSE:SWI), around 32.48% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, dishing out 5.2 percent of its 13F equity portfolio to SWI.

Judging by the fact that SolarWinds Corporation (NYSE:SWI) has experienced declining sentiment from the smart money, logic holds that there were a few hedgies who were dropping their positions entirely last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $2.8 million in stock, and Mika Toikka’s AlphaCrest Capital Management was right behind this move, as the fund sold off about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SolarWinds Corporation (NYSE:SWI) but similarly valued. We will take a look at Gentex Corporation (NASDAQ:GNTX), Gerdau SA (NYSE:GGB), Commerce Bancshares, Inc. (NASDAQ:CBSH), Perrigo Co Plc (NYSE:PRGO), CubeSmart (NYSE:CUBE), American Airlines Group Inc (NASDAQ:AAL), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). All of these stocks’ market caps are closest to SWI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GNTX 40 603326 2
GGB 11 134303 1
CBSH 15 50769 -1
PRGO 29 370821 -4
CUBE 18 229025 -6
AAL 37 208177 -10
MNTA 35 1256999 -7
Average 26.4 407631 -3.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $2718 million in SWI’s case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 11 bullish hedge fund positions. SolarWinds Corporation (NYSE:SWI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SWI is 28.4. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately SWI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SWI investors were disappointed as the stock returned -3.5% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.

Follow Solarwinds Corporation (NYSE:SWI)

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