U.S. Markets open in 5 hrs 39 mins

Is Seagate Technology plc (STX) Going to Burn These Hedge Funds?

Abigail Fisher

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.

Is Seagate Technology plc (NASDAQ:STX) a marvelous investment today? Prominent investors are reducing their bets on the stock. The number of long hedge fund bets went down by 2 recently. Our calculations also showed that STX isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

VALUEACT CAPITAL

We're going to take a peek at the new hedge fund action encompassing Seagate Technology plc (NASDAQ:STX).

How have hedgies been trading Seagate Technology plc (NASDAQ:STX)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STX over the last 13 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

STX_dec2018

The largest stake in Seagate Technology plc (NASDAQ:STX) was held by ValueAct Capital, which reported holding $1249.9 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $214 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Gotham Asset Management.

Due to the fact that Seagate Technology plc (NASDAQ:STX) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few money managers who sold off their positions entirely in the third quarter. Interestingly, Peter Muller's PDT Partners cut the largest investment of the 700 funds watched by Insider Monkey, totaling about $12.7 million in stock, and John Hurley's Cavalry Asset Management was right behind this move, as the fund cut about $9.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Seagate Technology plc (NASDAQ:STX). These stocks are WestRock Company (NYSE:WRK), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), The Cooper Companies, Inc. (NYSE:COO), and E*TRADE Financial Corporation (NASDAQ:ETFC). This group of stocks' market values are closest to STX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WRK,33,618833,10 SSNC,41,1698395,6 COO,18,1125764,0 ETFC,36,1474790,4 Average,32,1229446,5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1.23 billion. That figure was $1.76 billion in STX's case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand The Cooper Companies, Inc. (NYSE:COO) is the least popular one with only 18 bullish hedge fund positions. Seagate Technology plc (NASDAQ:STX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard SSNC might be a better candidate to consider a long position.

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

Related Content