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Is EXTR A Good Stock To Buy Now?

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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 Extreme Networks, Inc (NASDAQ:EXTR).

Is EXTR a good stock to buy now? Investors who are in the know were becoming less confident. The number of long hedge fund positions shrunk by 2 recently. Extreme Networks, Inc (NASDAQ:EXTR) was in 16 hedge funds' portfolios at the end of September. The all time high for this statistic is 25. Our calculations also showed that EXTR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with EXTR holdings at the end of June.

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

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Algert of Algert Global

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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we're going to take a look at the recent hedge fund action surrounding Extreme Networks, Inc (NASDAQ:EXTR).

Do Hedge Funds Think EXTR Is A Good Stock To Buy Now?

At the end of September, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in EXTR a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EXTR A Good Stock To Buy?
Is EXTR A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of Extreme Networks, Inc (NASDAQ:EXTR), with a stake worth $18.8 million reported as of the end of September. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $18.1 million. Voss Capital, Arrowstreet Capital, and Millennium Management 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 Voss Capital allocated the biggest weight to Extreme Networks, Inc (NASDAQ:EXTR), around 3.73% of its 13F portfolio. Cumberland Associates / Springowl Associates is also relatively very bullish on the stock, dishing out 1.99 percent of its 13F equity portfolio to EXTR.

Seeing as Extreme Networks, Inc (NASDAQ:EXTR) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers who were dropping their full holdings heading into Q4. Intriguingly, Lee Ainslie's Maverick Capital cut the largest position of the 750 funds followed by Insider Monkey, valued at about $0.9 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dropped its stock, about $0.6 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q4.

Let's go over hedge fund activity in other stocks similar to Extreme Networks, Inc (NASDAQ:EXTR). These stocks are CymaBay Therapeutics Inc (NASDAQ:CBAY), Tredegar Corporation (NYSE:TG), The Bancorp, Inc. (NASDAQ:TBBK), FutureFuel Corp. (NYSE:FF), Varex Imaging Corporation (NASDAQ:VREX), Northern Dynasty Minerals Ltd. (NYSE:NAK), and NOW Inc (NYSE:DNOW). This group of stocks' market caps are closest to EXTR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBAY,18,209182,-6 TG,12,52414,1 TBBK,18,55468,4 FF,12,48984,0 VREX,19,50693,-3 NAK,7,22223,-3 DNOW,22,74626,10 Average,15.4,73370,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $69 million in EXTR's case. NOW Inc (NYSE:DNOW) is the most popular stock in this table. On the other hand Northern Dynasty Minerals Ltd. (NYSE:NAK) is the least popular one with only 7 bullish hedge fund positions. Extreme Networks, Inc (NASDAQ:EXTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EXTR is 52.2. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on EXTR as the stock returned 58.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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