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Should You Buy QAD Inc. (QADA)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like QAD Inc. (NASDAQ:QADA) .

QAD Inc. (NASDAQ:QADA) was in 11 hedge funds’ portfolios at the end of September. QADA shareholders have witnessed an increase in support from the world’s most successful money managers in recent months. There were 10 hedge funds in our database with QADA positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Myokardia Inc (NASDAQ:MYOK), Barnes & Noble Education Inc (NYSE:BNED), and Triton International Limited(NYSE:TRTN) to gather more data points.

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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Keeping this in mind, we’re going to take a gander at the fresh action encompassing QAD Inc. (NASDAQ:QADA).

What does the smart money think about QAD Inc. (NASDAQ:QADA)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2016. By comparison, 11 hedge funds held shares or bullish call options in QADA heading into this year. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

qada

According to Insider Monkey’s hedge fund database, Nantahala Capital Management, led by Wilmot B. Harkey and Daniel Mack, holds the largest position in QAD Inc. (NASDAQ:QADA). Nantahala Capital Management has a $17.3 million position in the stock, comprising 2.1% of its 13F portfolio. The second most bullish fund is Jim Simons’ Renaissance Technologies, one of the largest hedge funds in the world, with a $13.4 million position; less than 0.1% of its 13F portfolio is allocated to the company. Some other peers that hold long positions contain Peter Schliemann’s Rutabaga Capital Management, Chuck Royce’s Royce & Associates and George McCabe’s Portolan Capital Management. We should note that Nantahala Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Portolan Capital Management created the largest position in QAD Inc. (NASDAQ:QADA). Portolan Capital Management had $2.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.4 million position during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.

Let’s go over hedge fund activity in other stocks similar to QAD Inc. (NASDAQ:QADA). We will take a look at Myokardia Inc (NASDAQ:MYOK), Barnes & Noble Education Inc (NYSE:BNED), Triton International Limited(NYSE:TRTN), and Ennis, Inc. (NYSE:EBF). This group of stocks’ market caps are closest to QADA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MYOK 15 81279 9
BNED 14 94174 -2
TRTN 12 16853 3
EBF 13 35161 0

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $53 million in QADA’s case. Myokardia Inc (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Triton International Limited(NYSE:TRTN) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks QAD Inc. (NASDAQ:QADA) is even less popular than TRTN. 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.