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Were Hedge Funds Right About Buying Check Point Software Technologies (CHKP)?

Abigail Fisher

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 fourth 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 4 years and analyze what the smart money thinks of Check Point Software Technologies Ltd. (NASDAQ:CHKP) based on that data.

Check Point Software Technologies Ltd. (NASDAQ:CHKP) has experienced an increase in support from the world's most elite money managers of late. Our calculations also showed that CHKP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

In the 21st century investor’s toolkit there are many signals shareholders put to use to assess their holdings. Two of the most under-the-radar signals are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best investment managers can outclass the market by a very impressive margin (see the details here).

[caption id="attachment_673876" align="aligncenter" width="399"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the latest hedge fund action regarding Check Point Software Technologies Ltd. (NASDAQ:CHKP).

How have hedgies been trading Check Point Software Technologies Ltd. (NASDAQ:CHKP)?

At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CHKP over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the number one position in Check Point Software Technologies Ltd. (NASDAQ:CHKP), worth close to $131.2 million, amounting to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Ako Capital, managed by Nicolai Tangen, which holds a $86.7 million position; 1.9% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish encompass D. E. Shaw's D E Shaw, John Overdeck and David Siegel's Two Sigma Advisors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Sirios Capital Management allocated the biggest weight to Check Point Software Technologies Ltd. (NASDAQ:CHKP), around 1.96% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, setting aside 1.87 percent of its 13F equity portfolio to CHKP.

Consequently, key hedge funds were breaking ground themselves. Ako Capital, managed by Nicolai Tangen, assembled the largest position in Check Point Software Technologies Ltd. (NASDAQ:CHKP). Ako Capital had $86.7 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $3.5 million position during the quarter. The following funds were also among the new CHKP investors: Hoon Kim's Quantinno Capital, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Mike Vranos's Ellington.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Check Point Software Technologies Ltd. (NASDAQ:CHKP) but similarly valued. These stocks are Magna International Inc. (NYSE:MGA), Dover Corporation (NYSE:DOV), Conagra Brands, Inc. (NYSE:CAG), and Maxim Integrated Products Inc. (NASDAQ:MXIM). This group of stocks' market caps match CHKP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGA,23,688858,4 DOV,29,547165,-6 CAG,29,740813,-2 MXIM,32,504696,0 Average,28.25,620383,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $627 million in CHKP's case. Maxim Integrated Products Inc. (NASDAQ:MXIM) is the most popular stock in this table. On the other hand Magna International Inc. (NYSE:MGA) is the least popular one with only 23 bullish hedge fund positions. Check Point Software Technologies Ltd. (NASDAQ:CHKP) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on CHKP as the stock returned -18.1% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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