Were Hedge Funds Right About Dumping Juniper Networks, Inc. (JNPR)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Juniper Networks, Inc. (NYSE:JNPR).

Juniper Networks, Inc. (NYSE:JNPR) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Juniper Networks, Inc. (NYSE:JNPR) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 41. There were 34 hedge funds in our database with JNPR positions at the end of the first quarter. Our calculations also showed that JNPR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are numerous gauges shareholders use to analyze their stock investments. A pair of the less utilized gauges are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can trounce the S&P 500 by a solid margin (see the details here).

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest insurance companies to identify fast growing companies in various industries. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a gander at the recent hedge fund action surrounding Juniper Networks, Inc. (NYSE:JNPR).

How have hedgies been trading Juniper Networks, Inc. (NYSE:JNPR)?

At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards JNPR over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Juniper Networks, Inc. (NYSE:JNPR), which was worth $114.9 million at the end of the third quarter. On the second spot was D E Shaw which amassed $79.3 million worth of shares. Citadel Investment Group, Pzena Investment Management, and Arrowstreet Capital 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 Fairpointe Capital allocated the biggest weight to Juniper Networks, Inc. (NYSE:JNPR), around 3.71% of its 13F portfolio. Oribel Capital Management is also relatively very bullish on the stock, setting aside 0.59 percent of its 13F equity portfolio to JNPR.

Seeing as Juniper Networks, Inc. (NYSE:JNPR) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few funds who sold off their positions entirely last quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $23 million in stock. John Murphy’s fund, Levin Easterly Partners, also dumped its stock, about $12.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Juniper Networks, Inc. (NYSE:JNPR) but similarly valued. We will take a look at ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), Perrigo Company (NASDAQ:PRGO), GCI Liberty, Inc. (NASDAQ:GLIBA), Snap-on Incorporated (NYSE:SNA), Trex Company, Inc. (NYSE:TREX), Iron Mountain Incorporated (NYSE:IRM), and Textron Inc. (NYSE:TXT). This group of stocks’ market valuations are similar to JNPR’s market valuation.

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As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $911 million. That figure was $559 million in JNPR’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand Snap-on Incorporated (NYSE:SNA) is the least popular one with only 20 bullish hedge fund positions. Juniper Networks, Inc. (NYSE:JNPR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JNPR is 47.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately JNPR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on JNPR were disappointed as the stock returned -13% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.