Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Radware Ltd. (NASDAQ:RDWR).
Radware Ltd. (NASDAQ:RDWR) was in 15 hedge funds' portfolios at the end of the third quarter of 2019. RDWR has experienced a decrease in hedge fund interest lately. There were 16 hedge funds in our database with RDWR holdings at the end of the previous quarter. Our calculations also showed that RDWR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to view the recent hedge fund action regarding Radware Ltd. (NASDAQ:RDWR).
How are hedge funds trading Radware Ltd. (NASDAQ:RDWR)?
At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in RDWR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Rima Senvest Management held the most valuable stake in Radware Ltd. (NASDAQ:RDWR), which was worth $135.4 million at the end of the third quarter. On the second spot was Cadian Capital which amassed $102.7 million worth of shares. Renaissance Technologies, D E Shaw, 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 Rima Senvest Management allocated the biggest weight to Radware Ltd. (NASDAQ:RDWR), around 11.67% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, setting aside 4.88 percent of its 13F equity portfolio to RDWR.
Because Radware Ltd. (NASDAQ:RDWR) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there were a few funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, Donald Sussman's Paloma Partners dropped the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising close to $0.3 million in call options. Ken Griffin's fund, Citadel Investment Group, also sold off its call options, about $0.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Radware Ltd. (NASDAQ:RDWR) but similarly valued. We will take a look at Orchard Therapeutics plc (NASDAQ:ORTX), Marten Transport, Ltd (NASDAQ:MRTN), Cision Ltd. (NYSE:CISN), and Avaya Holdings Corp. (NYSE:AVYA). This group of stocks' market valuations match RDWR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORTX,19,287447,-2 MRTN,22,60918,4 CISN,24,84267,3 AVYA,40,259286,-2 Average,26.25,172980,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $310 million in RDWR's case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand Orchard Therapeutics plc (NASDAQ:ORTX) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Radware Ltd. (NASDAQ:RDWR) is even less popular than ORTX. Hedge funds dodged a bullet by taking a bearish stance towards RDWR. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RDWR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RDWR investors were disappointed as the stock returned -0.7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.