Should You Avoid NetScout Systems, Inc. (NTCT)?

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about NetScout Systems, Inc. (NASDAQ:NTCT).

NetScout Systems, Inc. (NASDAQ:NTCT) was in 12 hedge funds’ portfolios at the end of the third quarter of 2018. NTCT shareholders have witnessed a decrease in hedge fund interest recently. There were 14 hedge funds in our database with NTCT holdings at the end of the previous quarter. Our calculations also showed that ntct isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are numerous tools stock traders have at their disposal to assess publicly traded companies. A couple of the most underrated tools are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the top hedge fund managers can outpace the broader indices by a superb amount (see the details here).

Chuck Royce

We’re going to take a look at the recent hedge fund action encompassing NetScout Systems, Inc. (NASDAQ:NTCT).

What does the smart money think about NetScout Systems, Inc. (NASDAQ:NTCT)?

Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NTCT over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with NTCT Positions

Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in NetScout Systems, Inc. (NASDAQ:NTCT), worth close to $72.1 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $15.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Noam Gottesman’s GLG Partners, Israel Englander’s Millennium Management and Chuck Royce’s Royce & Associates.

Judging by the fact that NetScout Systems, Inc. (NASDAQ:NTCT) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedge funds that slashed their positions entirely in the third quarter. It’s worth mentioning that Claus Moller’s P2 Capital Partners said goodbye to the largest position of the 700 funds followed by Insider Monkey, valued at an estimated $32.9 million in stock. Jim Simons’s fund, Renaissance Technologies, also dumped its stock, about $1.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NetScout Systems, Inc. (NASDAQ:NTCT) but similarly valued. These stocks are Summit Materials Inc (NYSE:SUM), Taylor Morrison Home Corp (NYSE:TMHC), TopBuild Corp (NYSE:BLD), and Advanced Energy Industries, Inc. (NASDAQ:AEIS). This group of stocks’ market caps resemble NTCT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SUM 21 570012 -6
TMHC 21 398861 0
BLD 18 142394 5
AEIS 19 191790 0
Average 19.75 325764 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $106 million in NTCT’s case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand TopBuild Corp (NYSE:BLD) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks NetScout Systems, Inc. (NASDAQ:NTCT) is even less popular than BLD. 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.