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Perion Network Ltd (PERI) May Be Best Avoided

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data shows that elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending October 31 and 63% of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Perion Network Ltd (NASDAQ:PERI) from the perspective of those elite funds.

Perion Network Ltd (NASDAQ:PERI) investors should pay attention to a decrease in enthusiasm from smart money of late. During the third quarter, when shares of the company declined by 26%, hedge fund ownership fell by 2 and the value of their positions fell by nearly an equal amount, showing that top investors didn’t have a lot of confidence in the stock to want to buy more shares even at a reduced rate. At the end of this article we will also compare PERI to other stocks including ModusLink Global Solutions, Inc. (NASDAQ:MLNK), Harmony Merger Corp (NASDAQ:HRMN), and magicJack VocalTec Ltd (NASDAQ:CALL) to get a better sense of its popularity.

If you’d ask most market participants, hedge funds are seen as slow, outdated investment tools of yesteryear. While there are greater than an 8,000 funds in operation at the moment, we hone in on the moguls of this group, around 700 funds. It is estimated that this group of investors manage the majority of the smart money’s total asset base, and by following their unrivaled stock picks, Insider Monkey has determined a number of investment strategies that have historically outpaced Mr. Market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s check out the recent action encompassing Perion Network Ltd (NASDAQ:PERI).

How have hedgies been trading Perion Network Ltd (NASDAQ:PERI)?

Heading into Q4, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a 22% fall from the second quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or had already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the most valuable position in Perion Network Ltd (NASDAQ:PERI). Renaissance Technologies has a $2 million position in the stock, comprising less than 0.1% of its 13F portfolio. On Renaissance Technologies’ heels is Andy Redleaf of Whitebox Advisors, with a $1 million position; less than 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish include Josh Goldberg’s G2 Investment Partners Management, Chao Ku’s Nine Chapters Capital Management, and Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners.

Due to the fact that Perion Network Ltd (NASDAQ:PERI) has experienced falling interest from hedge fund managers, logic holds that there is a sect of hedge funds that slashed their positions entirely in the third quarter. It’s worth mentioning that D E Shaw dumped the largest position of all the hedgies watched by Insider Monkey, valued at close to $0.1 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund said goodbye to about $0.1 million worth of shares. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Perion Network Ltd (NASDAQ:PERI) but similarly valued. We will take a look at ModusLink Global Solutions, Inc. (NASDAQ:MLNK), Harmony Merger Corp (NASDAQ:HRMN), magicJack VocalTec Ltd (NASDAQ:CALL), and Planet Payment Inc (NASDAQ:PLPM). All of these stocks’ market caps resemble PERI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MLNK 11 61293 0
HRMN 4 17719 1
CALL 9 11341 0
PLPM 10 4986 4

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 $24 million. That figure was $3 million in PERI’s case. ModusLink Global Solutions, Inc. (NASDAQ:MLNK) is the most popular stock in this table. On the other hand Harmony Merger Corp (NASDAQ:HRMN) is the least popular one with only 4 bullish hedge fund positions. Perion Network Ltd (NASDAQ:PERI) is not the least popular stock in this group but hedge fund interest is still below average, and there is less money invested in it than in any of the other stocks listed. This is a negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MLNK might be a better candidate to consider a long position in.

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