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Should You Buy Switch, Inc. (SWCH)?

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 Switch, Inc. (NYSE:SWCH).

Switch, Inc. (NYSE:SWCH) was in 14 hedge funds’ portfolios at the end of the third quarter of 2019. SWCH has seen an increase in enthusiasm from smart money recently. There were 13 hedge funds in our database with SWCH holdings at the end of the previous quarter. Our calculations also showed that SWCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman of Tiger Global

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action encompassing Switch, Inc. (NYSE:SWCH).

Hedge fund activity in Switch, Inc. (NYSE:SWCH)

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in SWCH over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Sylebra Capital Management held the most valuable stake in Switch, Inc. (NYSE:SWCH), which was worth $118.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $86.1 million worth of shares. Tiger Global Management, Rima Senvest Management, and Millennium Management 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 Sylebra Capital Management allocated the biggest weight to Switch, Inc. (NYSE:SWCH), around 5.16% of its 13F portfolio. Rima Senvest Management is also relatively very bullish on the stock, designating 2.97 percent of its 13F equity portfolio to SWCH.

Now, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in Switch, Inc. (NYSE:SWCH). Balyasny Asset Management had $1.9 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $0.2 million position during the quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Switch, Inc. (NYSE:SWCH). We will take a look at Mantech International Corporation (NASDAQ:MANT), Itau CorpBanca (NYSE:ITCB), TerraForm Power Inc (NASDAQ:TERP), and Allakos Inc. (NASDAQ:ALLK). This group of stocks’ market values resemble SWCH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MANT 14 17786 3
ITCB 1 3608 0
TERP 11 247376 -1
ALLK 16 399428 8
Average 10.5 167050 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $322 million in SWCH’s case. Allakos Inc. (NASDAQ:ALLK) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Switch, Inc. (NYSE:SWCH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SWCH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SWCH were disappointed as the stock returned 1.1% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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