VeriFone Systems Inc (NYSE:PAY): Hedge Funds and Insiders Are Bearish, What Should You Do? – Pitney Bowes Inc. (NYSE:PBI), Steelcase Inc. (NYSE:SCS)

Is VeriFone Systems Inc (NYSE:PAY) a bargain? The smart money is in a bearish mood. The number of long hedge fund positions shrunk by 6 in recent months.

If you’d ask most shareholders, hedge funds are seen as unimportant, outdated financial tools of yesteryear. While there are over 8000 funds in operation at the moment, we at Insider Monkey look at the moguls of this group, close to 450 funds. It is estimated that this group oversees the lion’s share of the hedge fund industry’s total capital, and by watching their top stock picks, we have formulated a number of investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Equally as integral, bullish insider trading sentiment is a second way to break down the world of equities. There are a variety of incentives for an executive to downsize shares of his or her company, but just one, very obvious reason why they would behave bullishly. Several empirical studies have demonstrated the impressive potential of this method if you know where to look (learn more here).

With these “truths” under our belt, we’re going to take a peek at the recent action encompassing VeriFone Systems Inc (NYSE:PAY).

Hedge fund activity in VeriFone Systems Inc (NYSE:PAY)

Heading into 2013, a total of 15 of the hedge funds we track were long in this stock, a change of -29% from one quarter earlier. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially.

When looking at the hedgies we track, Brookside Capital, managed by Bain Capital, holds the most valuable position in VeriFone Systems Inc (NYSE:PAY). Brookside Capital has a $72 million position in the stock, comprising 1.6% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which held a $63 million position; 0.7% of its 13F portfolio is allocated to the stock. Other hedge funds that are bullish include Leon Cooperman’s Omega Advisors, Jim Simons’s Renaissance Technologies and D. E. Shaw’s D E Shaw.

Seeing as VeriFone Systems Inc (NYSE:PAY) has faced falling interest from the smart money, it’s safe to say that there is a sect of hedgies that slashed their positions entirely heading into 2013. Intriguingly, Panayotis “Takis” Sparaggis’s Alkeon Capital Management sold off the biggest stake of all the hedgies we monitor, comprising an estimated $21 million in stock.. Daniel Arbess’s fund, Xerion, also cut its stock, about $15 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds heading into 2013.

How have insiders been trading VeriFone Systems Inc (NYSE:PAY)?

Insider buying is most useful when the company we’re looking at has seen transactions within the past half-year. Over the last 180-day time frame, VeriFone Systems Inc (NYSE:PAY) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to VeriFone Systems Inc (NYSE:PAY). These stocks are Knoll Inc (NYSE:KNL), HNI Corp (NYSE:HNI), Herman Miller, Inc. (NASDAQ:MLHR), Pitney Bowes Inc. (NYSE:PBI), and Steelcase Inc. (NYSE:SCS). This group of stocks belong to the business equipment industry and their market caps resemble PAY’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Knoll Inc (NYSE:KNL) 8 0 4
HNI Corp (NYSE:HNI) 3 1 7
Herman Miller, Inc. (NASDAQ:MLHR) 10 0 3
Pitney Bowes Inc. (NYSE:PBI) 23 0 0
Steelcase Inc. (NYSE:SCS) 19 0 2

With the returns demonstrated by Insider Monkey’s tactics, retail investors should always pay attention to hedge fund and insider trading activity, and VeriFone Systems Inc (NYSE:PAY) applies perfectly to this mantra.

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Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.