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Is RMBS A Good Stock To Buy According To Hedge Funds?

Reymerlyn Martin
·5 min read

Is Rambus Inc. (NASDAQ:RMBS) 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 RMBS a good stock to buy? Rambus Inc. (NASDAQ:RMBS) was in 19 hedge funds' portfolios at the end of September. The all time high for this statistic is 24. RMBS has experienced an increase in enthusiasm from smart money in recent months. There were 18 hedge funds in our database with RMBS holdings at the end of June. Our calculations also showed that RMBS 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). 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.

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 peek at the new hedge fund action encompassing Rambus Inc. (NASDAQ:RMBS).

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

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RMBS over the last 21 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Rambus Inc. (NASDAQ:RMBS) was held by Lynrock Lake, which reported holding $59.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $47.5 million position. Other investors bullish on the company included D E Shaw, Arrowstreet Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Barington Capital Group allocated the biggest weight to Rambus Inc. (NASDAQ:RMBS), around 7.05% of its 13F portfolio. Lynrock Lake is also relatively very bullish on the stock, earmarking 4.44 percent of its 13F equity portfolio to RMBS.

Now, key hedge funds were leading the bulls' herd. Heard Capital, managed by William Heard, initiated the largest position in Rambus Inc. (NASDAQ:RMBS). Heard Capital had $5.9 million invested in the company at the end of the quarter. James A. Mitarotonda's Barington Capital Group also initiated a $4 million position during the quarter. The only other fund with a new position in the stock is Donald Sussman's Paloma Partners.

Let's now take a look at hedge fund activity in other stocks similar to Rambus Inc. (NASDAQ:RMBS). We will take a look at Innospec Inc. (NASDAQ:IOSP), USANA Health Sciences, Inc. (NYSE:USNA), Baozun Inc (NASDAQ:BZUN), SeaWorld Entertainment Inc (NYSE:SEAS), Mueller Industries, Inc. (NYSE:MLI), Viela Bio, Inc. (NASDAQ:VIE), and Y-mAbs Therapeutics, Inc. (NASDAQ:YMAB). This group of stocks' market values resemble RMBS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IOSP,21,74483,3 USNA,18,202824,-1 BZUN,21,72825,6 SEAS,32,797374,5 MLI,20,185077,2 VIE,5,145172,-3 YMAB,10,113072,-3 Average,18.1,227261,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $168 million in RMBS's case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Viela Bio, Inc. (NASDAQ:VIE) is the least popular one with only 5 bullish hedge fund positions. Rambus Inc. (NASDAQ:RMBS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RMBS is 55.7. 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 RMBS as the stock returned 30.4% 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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