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We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like SecureWorks Corp. (NASDAQ:SCWX).
SecureWorks Corp. (NASDAQ:SCWX) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Bitauto Hldg Ltd (NYSE:BITA), Inogen Inc (NASDAQ:INGN), and Blucora Inc (NASDAQ:BCOR) to gather more data points. Our calculations also showed that SCWX 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.
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Chuck Royce of Royce & Associates[/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 take a peek at the recent hedge fund action surrounding SecureWorks Corp. (NASDAQ:SCWX).
How are hedge funds trading SecureWorks Corp. (NASDAQ:SCWX)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCWX over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in SecureWorks Corp. (NASDAQ:SCWX) was held by Royce & Associates, which reported holding $7.7 million worth of stock at the end of September. It was followed by Masters Capital Management with a $6.1 million position. Other investors bullish on the company included Millennium Management, Two Sigma Advisors, and AQR Capital Management. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to SecureWorks Corp. (NASDAQ:SCWX), around 0.36% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to SCWX.
Due to the fact that SecureWorks Corp. (NASDAQ:SCWX) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of hedgies who were dropping their full holdings heading into Q4. At the top of the heap, Renaissance Technologies dumped the largest stake of the 750 funds monitored by Insider Monkey, valued at close to $0.5 million in stock, and Phil Frohlich's Prescott Group Capital Management was right behind this move, as the fund sold off about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to SecureWorks Corp. (NASDAQ:SCWX). These stocks are Bitauto Hldg Ltd (NYSE:BITA), Inogen Inc (NASDAQ:INGN), Blucora Inc (NASDAQ:BCOR), and Sangamo Therapeutics, Inc. (NASDAQ:SGMO). All of these stocks' market caps are similar to SCWX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BITA,13,72639,6 INGN,14,136246,-4 BCOR,14,99880,-2 SGMO,14,55789,-3 Average,13.75,91139,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $19 million in SCWX's case. Inogen Inc (NASDAQ:INGN) is the most popular stock in this table. On the other hand Bitauto Hldg Ltd (NYSE:BITA) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks SecureWorks Corp. (NASDAQ:SCWX) is even less popular than BITA. Hedge funds dodged a bullet by taking a bearish stance towards SCWX. 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 SCWX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SCWX investors were disappointed as the stock returned -12.3% 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.