U.S. Markets closed

Should You Buy QAD Inc. (QADA)?

Al Green

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is QAD Inc. (NASDAQ:QADA) a buy, sell, or hold? The smart money is in a bullish mood. The number of bullish hedge fund bets increased by 1 lately. Our calculations also showed that QADA isn't among the 30 most popular stocks among hedge funds. QADA was in 16 hedge funds' portfolios at the end of September. There were 15 hedge funds in our database with QADA positions at the end of the previous quarter.

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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

We're going to take a gander at the new hedge fund action surrounding QAD Inc. (NASDAQ:QADA).

What have hedge funds been doing with QAD Inc. (NASDAQ:QADA)?

Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in QADA over the last 13 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds QADA Positions

Among these funds, Nantahala Capital Management held the most valuable stake in QAD Inc. (NASDAQ:QADA), which was worth $47.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $37.4 million worth of shares. Moreover, Portolan Capital Management, Royce & Associates, and Whetstone Capital Advisors were also bullish on QAD Inc. (NASDAQ:QADA), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the biggest position in QAD Inc. (NASDAQ:QADA). Marshall Wace LLP had $2.4 million invested in the company at the end of the quarter.

Let's go over hedge fund activity in other stocks similar to QAD Inc. (NASDAQ:QADA). These stocks are Standard Motor Products, Inc. (NYSE:SMP), Vocera Communications Inc (NYSE:VCRA), Benchmark Electronics, Inc. (NYSE:BHE), and Chico's FAS, Inc. (NYSE:CHS). All of these stocks' market caps are closest to QADA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMP,10,132232,4 VCRA,11,91228,-4 BHE,13,138093,-5 CHS,18,74700,-2 Average,13,109063,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $163 million in QADA's case. Chico's FAS, Inc. (NYSE:CHS) is the most popular stock in this table. On the other hand Standard Motor Products, Inc. (NYSE:SMP) is the least popular one with only 10 bullish hedge fund positions. QAD Inc. (NASDAQ:QADA) 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. In this regard CHS might be a better candidate to consider a long position.

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

Related Content