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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 CommVault Systems, Inc. (NASDAQ:CVLT) and determine whether hedge funds had an edge regarding this stock.
CommVault Systems, Inc. (NASDAQ:CVLT) has seen an increase in hedge fund interest recently. CommVault Systems, Inc. (NASDAQ:CVLT) was in 22 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. There were 18 hedge funds in our database with CVLT holdings at the end of March. Our calculations also showed that CVLT 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. Now let's review the recent hedge fund action regarding CommVault Systems, Inc. (NASDAQ:CVLT).
How have hedgies been trading CommVault Systems, Inc. (NASDAQ:CVLT)?
At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CVLT over the last 20 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Starboard Value LP was the largest shareholder of CommVault Systems, Inc. (NASDAQ:CVLT), with a stake worth $169 million reported as of the end of September. Trailing Starboard Value LP was Renaissance Technologies, which amassed a stake valued at $107.9 million. D E Shaw, AQR Capital Management, and Cove Street 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 Starboard Value LP allocated the biggest weight to CommVault Systems, Inc. (NASDAQ:CVLT), around 6.02% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 2.62 percent of its 13F equity portfolio to CVLT.
As one would reasonably expect, key money managers have jumped into CommVault Systems, Inc. (NASDAQ:CVLT) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in CommVault Systems, Inc. (NASDAQ:CVLT). Arrowstreet Capital had $8 million invested in the company at the end of the quarter. Marc Majzner's Clearline Capital also initiated a $0.7 million position during the quarter. The other funds with brand new CVLT positions are Parvinder Thiara's Athanor Capital, Cynthia Paul's Lynrock Lake, and Michael Gelband's ExodusPoint Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CommVault Systems, Inc. (NASDAQ:CVLT) but similarly valued. These stocks are Pebblebrook Hotel Trust (NYSE:PEB), KAR Auction Services Inc (NYSE:KAR), Allegiant Travel Company (NASDAQ:ALGT), The Simply Good Foods Company (NASDAQ:SMPL), SJW Corp. (NYSE:SJW), Liberty Latin America Ltd. (NASDAQ:LILA), and Cavco Industries, Inc. (NASDAQ:CVCO). This group of stocks' market valuations match CVLT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEB,13,137590,3 KAR,30,302345,9 ALGT,23,334831,4 SMPL,26,138560,7 SJW,11,84916,1 LILA,15,102005,3 CVCO,23,170774,3 Average,20.1,181574,4.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $397 million in CVLT's case. KAR Auction Services Inc (NYSE:KAR) is the most popular stock in this table. On the other hand SJW Corp. (NYSE:SJW) is the least popular one with only 11 bullish hedge fund positions. CommVault Systems, Inc. (NASDAQ:CVLT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CVLT is 57.9. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately CVLT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CVLT were disappointed as the stock returned 5.4% in Q3 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.
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Disclosure: None. This article was originally published at Insider Monkey.