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Were Hedge Funds Right About Flocking Into Casa Systems, Inc. (CASA) ?

Nina Todic

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Casa Systems, Inc. (NASDAQ:CASA).

Casa Systems, Inc. (NASDAQ:CASA) was in 19 hedge funds' portfolios at the end of the first quarter of 2019. CASA has seen an increase in activity from the world's largest hedge funds recently. There were 12 hedge funds in our database with CASA positions at the end of the previous quarter. Our calculations also showed that casa isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let's view the fresh hedge fund action encompassing Casa Systems, Inc. (NASDAQ:CASA).

How have hedgies been trading Casa Systems, Inc. (NASDAQ:CASA)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 58% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in CASA over the last 15 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

No of Hedge Funds with CASA Positions

The largest stake in Casa Systems, Inc. (NASDAQ:CASA) was held by D E Shaw, which reported holding $4.5 million worth of stock at the end of March. It was followed by AQR Capital Management with a $4.3 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Two Sigma Advisors.

Now, key hedge funds were breaking ground themselves. AQR Capital Management, managed by Cliff Asness, created the most outsized position in Casa Systems, Inc. (NASDAQ:CASA). AQR Capital Management had $4.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $4.2 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management, Ken Griffin's Citadel Investment Group, and Matthew Hulsizer's PEAK6 Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Casa Systems, Inc. (NASDAQ:CASA) but similarly valued. These stocks are Echo Global Logistics, Inc. (NASDAQ:ECHO), Preferred Bank (NASDAQ:PFBC), OraSure Technologies, Inc. (NASDAQ:OSUR), and Oasis Midstream Partners LP (NYSE:OMP). This group of stocks' market caps match CASA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ECHO,13,23188,-2 PFBC,11,41067,0 OSUR,18,107535,-3 OMP,3,4325,0 Average,11.25,44029,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $29 million in CASA's case. OraSure Technologies, Inc. (NASDAQ:OSUR) is the most popular stock in this table. On the other hand Oasis Midstream Partners LP (NYSE:OMP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Casa Systems, Inc. (NASDAQ:CASA) is more popular among hedge funds. 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. Unfortunately CASA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CASA were disappointed as the stock returned -30.8% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.

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

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