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Did Hedge Funds Drop The Ball On Seagate Technology plc (STX)?

Asma UL Husna

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Seagate Technology plc (NASDAQ:STX).

Is Seagate Technology plc (NASDAQ:STX) a buy, sell, or hold? Hedge funds are getting less optimistic. The number of bullish hedge fund positions retreated by 1 in recent months. Our calculations also showed that STX isn't among the 30 most popular stocks among hedge funds (view the video below). STX was in 23 hedge funds' portfolios at the end of the second quarter of 2019. There were 24 hedge funds in our database with STX positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

STX_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the latest hedge fund action surrounding Seagate Technology plc (NASDAQ:STX).

How have hedgies been trading Seagate Technology plc (NASDAQ:STX)?

At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in STX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Jeff Ubben VALUEACT CAPITAL

Among these funds, ValueAct Capital held the most valuable stake in Seagate Technology plc (NASDAQ:STX), which was worth $1486.8 million at the end of the second quarter. On the second spot was Two Sigma Advisors which amassed $122.8 million worth of shares. Moreover, Renaissance Technologies, AQR Capital Management, and Citadel Investment Group were also bullish on Seagate Technology plc (NASDAQ:STX), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Seagate Technology plc (NASDAQ:STX) has faced a decline in interest from hedge fund managers, logic holds that there were a few funds who were dropping their full holdings by the end of the second quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management sold off the largest investment of the "upper crust" of funds followed by Insider Monkey, worth close to $37.5 million in stock. Steve Cohen's fund, Point72 Asset Management, also cut its stock, about $19.2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks similar to Seagate Technology plc (NASDAQ:STX). These stocks are Lincoln National Corporation (NYSE:LNC), Citrix Systems, Inc. (NASDAQ:CTXS), IDEX Corporation (NYSE:IEX), and Yandex NV (NASDAQ:YNDX). This group of stocks' market caps are closest to STX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LNC,35,620312,-5 CTXS,34,2028377,0 IEX,15,374953,-1 YNDX,30,826000,0 Average,28.5,962411,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $962 million. That figure was $1871 million in STX's case. Lincoln National Corporation (NYSE:LNC) is the most popular stock in this table. On the other hand IDEX Corporation (NYSE:IEX) is the least popular one with only 15 bullish hedge fund positions. Seagate Technology plc (NASDAQ:STX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on STX as the stock returned 15.5% during the same time frame and outperformed the market by an even larger margin.

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

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