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Is New Relic Inc (NEWR) A Good Stock To Buy?

Reymerlyn Martin

Is New Relic Inc (NYSE:NEWR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is New Relic Inc (NYSE:NEWR) ready to rally soon? The best stock pickers are getting less optimistic. The number of long hedge fund positions shrunk by 1 lately. Our calculations also showed that NEWR isn't among the 30 most popular stocks among hedge funds. NEWR was in 27 hedge funds' portfolios at the end of March. There were 28 hedge funds in our database with NEWR holdings at the end of the previous quarter.

To the average investor there are a lot of tools market participants have at their disposal to appraise publicly traded companies. A pair of the most useful tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can outclass the S&P 500 by a solid amount (see the details here).

Michael Hintze CQS Cayman

We're going to take a look at the key hedge fund action regarding New Relic Inc (NYSE:NEWR).

How have hedgies been trading New Relic Inc (NYSE:NEWR)?

Heading into the second quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NEWR over the last 15 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

NEWR_jun2019

More specifically, Two Sigma Advisors was the largest shareholder of New Relic Inc (NYSE:NEWR), with a stake worth $82.4 million reported as of the end of March. Trailing Two Sigma Advisors was Renaissance Technologies, which amassed a stake valued at $59.6 million. Jericho Capital Asset Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that New Relic Inc (NYSE:NEWR) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers that elected to cut their full holdings by the end of the third quarter. Interestingly, David Goel and Paul Ferri's Matrix Capital Management dropped the largest stake of all the hedgies monitored by Insider Monkey, worth close to $43.9 million in stock. Christopher Lyle's fund, SCGE Management, also sold off its stock, about $20.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as New Relic Inc (NYSE:NEWR) but similarly valued. We will take a look at Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Insulet Corporation (NASDAQ:PODD), Cable One Inc (NYSE:CABO), and Affiliated Managers Group, Inc. (NYSE:AMG). This group of stocks' market caps resemble NEWR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KNX,33,385562,7 PODD,20,245751,-2 CABO,18,524921,3 AMG,23,517004,-4 Average,23.5,418310,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $379 million in NEWR's case. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 18 bullish hedge fund positions. New Relic Inc (NYSE:NEWR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on NEWR as the stock returned 3.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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