Is NetGear, Inc. (NASDAQ:NTGR) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is NetGear, Inc. (NASDAQ:NTGR) worth your attention right now? Prominent investors are buying. The number of long hedge fund positions advanced by 8 recently. Our calculations also showed that NTGR 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26388" align="aligncenter" width="468"] Lee Ainslie of Maverick Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the latest hedge fund action surrounding NetGear, Inc. (NASDAQ:NTGR).
What have hedge funds been doing with NetGear, Inc. (NASDAQ:NTGR)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 73% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NTGR over the last 17 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in NetGear, Inc. (NASDAQ:NTGR). Citadel Investment Group has a $6.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Citadel Investment Group's heels is John Overdeck and David Siegel of Two Sigma Advisors, with a $3.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism consist of Israel Englander's Millennium Management, Austin Wiggins Hopper's AWH Capital and Lee Ainslie's Maverick Capital. In terms of the portfolio weights assigned to each position AWH Capital allocated the biggest weight to NetGear, Inc. (NASDAQ:NTGR), around 3.34% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to NTGR.
Now, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, established the largest position in NetGear, Inc. (NASDAQ:NTGR). Millennium Management had $2.8 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser's Magnetar Capital also made a $1 million investment in the stock during the quarter. The other funds with new positions in the stock are David Harding's Winton Capital Management, Minhua Zhang's Weld Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as NetGear, Inc. (NASDAQ:NTGR) but similarly valued. These stocks are Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS), Esperion Therapeutics, Inc. (NASDAQ:ESPR), Heritage Financial Corporation (NASDAQ:HFWA), and Boot Barn Holdings Inc (NYSE:BOOT). This group of stocks' market valuations are closest to NTGR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VLRS,8,111630,1 ESPR,15,148350,-1 HFWA,9,42375,0 BOOT,22,173218,0 Average,13.5,118893,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $23 million in NTGR's case. Boot Barn Holdings Inc (NYSE:BOOT) is the most popular stock in this table. On the other hand Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) is the least popular one with only 8 bullish hedge fund positions. NetGear, Inc. (NASDAQ:NTGR) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NTGR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NTGR were disappointed as the stock returned -22.1% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.