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Will NetApp Inc. (NTAP) Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NetApp Inc. (NASDAQ:NTAP) and determine whether hedge funds had an edge regarding this stock.

Is NetApp Inc. (NASDAQ:NTAP) undervalued? Prominent investors were getting less optimistic. The number of bullish hedge fund bets retreated by 1 lately. NetApp Inc. (NASDAQ:NTAP) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. Our calculations also showed that NTAP 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). There were 26 hedge funds in our database with NTAP positions at the end of the first quarter.

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

To most shareholders, hedge funds are viewed as unimportant, old investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at present, Our researchers choose to focus on the top tier of this group, approximately 850 funds. These investment experts preside over the majority of all hedge funds’ total capital, and by observing their inimitable equity investments, Insider Monkey has determined a number of investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Keeping this in mind we’re going to take a peek at the latest hedge fund action surrounding NetApp Inc. (NASDAQ:NTAP).

Hedge fund activity in NetApp Inc. (NASDAQ:NTAP)

Heading into the third quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NTAP over the last 20 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of NetApp Inc. (NASDAQ:NTAP), with a stake worth $140.4 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $76.9 million. Two Sigma Advisors, Millennium Management, and Citadel Investment Group 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 PDT Partners allocated the biggest weight to NetApp Inc. (NASDAQ:NTAP), around 0.62% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, earmarking 0.57 percent of its 13F equity portfolio to NTAP.

Seeing as NetApp Inc. (NASDAQ:NTAP) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers that elected to cut their full holdings last quarter. Intriguingly, Benjamin A. Smith’s Laurion Capital Management cut the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $5.3 million in stock. Paul Cantor, Joseph Weiss, and Will Wurm’s fund, Beech Hill Partners, also dropped its stock, about $2.9 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to NetApp Inc. (NASDAQ:NTAP). We will take a look at Darden Restaurants, Inc. (NYSE:DRI), HubSpot Inc (NYSE:HUBS), Avantor, Inc. (NYSE:AVTR), Qiagen NV (NYSE:QGEN), China Southern Airlines Co Ltd (NYSE:ZNH), RPM International Inc. (NYSE:RPM), and The Carlyle Group Inc. (NASDAQ:CG). This group of stocks’ market values match NTAP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DRI 49 1202504 -3
HUBS 41 867564 14
AVTR 34 646574 5
QGEN 32 652397 2
ZNH 2 7852 0
RPM 26 108615 4
CG 8 171536 -8
Average 27.4 522435 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $522 million. That figure was $466 million in NTAP’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 2 bullish hedge fund positions. NetApp Inc. (NASDAQ:NTAP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NTAP is 51.2. 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 negative signal and 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately NTAP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NTAP investors were disappointed as the stock returned -4.4% since Q2 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 most of these stocks already outperformed the market in 2020.

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