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Was The Smart Money Right About New Relic Inc (NEWR)?

·5 min read

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of New Relic Inc (NYSE:NEWR) based on that data and determine whether they were really smart about the stock.

Is New Relic Inc (NYSE:NEWR) the right pick for your portfolio? The smart money was buying. The number of long hedge fund bets improved by 1 recently. New Relic Inc (NYSE:NEWR) was in 30 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 44. Our calculations also showed that NEWR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 29 hedge funds in our database with NEWR holdings at the end of June.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we're going to go over the recent hedge fund action encompassing New Relic Inc (NYSE:NEWR).

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

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

At the end of September, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in NEWR a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in New Relic Inc (NYSE:NEWR) was held by HMI Capital, which reported holding $377.4 million worth of stock at the end of September. It was followed by Matrix Capital Management with a $358.9 million position. Other investors bullish on the company included Eminence Capital, Engaged Capital, and Archon Capital Management. In terms of the portfolio weights assigned to each position HMI Capital allocated the biggest weight to New Relic Inc (NYSE:NEWR), around 11.32% of its 13F portfolio. Engaged Capital is also relatively very bullish on the stock, setting aside 8.25 percent of its 13F equity portfolio to NEWR.

As industrywide interest jumped, key money managers have jumped into New Relic Inc (NYSE:NEWR) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the biggest position in New Relic Inc (NYSE:NEWR). Marshall Wace LLP had $3.9 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $3.1 million position during the quarter. The other funds with brand new NEWR positions are Jinghua Yan's TwinBeech Capital, Dmitry Balyasny's Balyasny Asset Management, and Alec Litowitz and Ross Laser's Magnetar Capital.

Let's now take a look at 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 Tripadvisor Inc (NASDAQ:TRIP), National Vision Holdings, Inc. (NASDAQ:EYE), Lancaster Colony Corporation (NASDAQ:LANC), Simpson Manufacturing Co, Inc. (NYSE:SSD), Shoals Technologies Group, Inc. (NASDAQ:SHLS), Papa John's International, Inc. (NASDAQ:PZZA), and Shell Midstream Partners LP (NYSE:SHLX). This group of stocks' market caps are similar to NEWR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRIP,33,831284,-3 EYE,16,397802,-3 LANC,21,251251,3 SSD,19,177824,0 SHLS,13,63890,1 PZZA,33,744692,3 SHLX,6,17076,2 Average,20.1,354831,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $355 million. That figure was $1407 million in NEWR's case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 6 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 overall hedge fund sentiment score for NEWR is 70.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on NEWR as the stock returned 46.5% since the end of Q3 (through 1/31) 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.