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Is Xilinx, Inc. (XLNX) A Good Stock To Buy?

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Xilinx, Inc. (NASDAQ:XLNX).

Xilinx, Inc. (NASDAQ:XLNX) was in 38 hedge funds' portfolios at the end of September. XLNX has experienced a decrease in activity from the world's largest hedge funds of late. There were 39 hedge funds in our database with XLNX holdings at the end of the previous quarter. Our calculations also showed that XLNX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_255014" align="aligncenter" width="450"] Clint Carlson of Carlson Capital[/caption]

Clint Carlson of Carlson Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the latest hedge fund action encompassing Xilinx, Inc. (NASDAQ:XLNX).

How have hedgies been trading Xilinx, Inc. (NASDAQ:XLNX)?

At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in XLNX over the last 17 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

XLNX_nov2019

Among these funds, Arrowstreet Capital held the most valuable stake in Xilinx, Inc. (NASDAQ:XLNX), which was worth $229.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $214.6 million worth of shares. Alkeon Capital Management, Renaissance Technologies, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Ratan Capital Group allocated the biggest weight to Xilinx, Inc. (NASDAQ:XLNX), around 2.18% of its portfolio. Mark Asset Management is also relatively very bullish on the stock, dishing out 1.03 percent of its 13F equity portfolio to XLNX.

Seeing as Xilinx, Inc. (NASDAQ:XLNX) has witnessed a decline in interest from the smart money, logic holds that there was a specific group of hedge funds that elected to cut their positions entirely last quarter. It's worth mentioning that Principal Global Investors's Columbus Circle Investors dumped the largest position of the "upper crust" of funds monitored by Insider Monkey, comprising about $27.5 million in call options. Nehal Chopra's fund, Ratan Capital Group, also dumped its call options, about $23.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Xilinx, Inc. (NASDAQ:XLNX) but similarly valued. These stocks are Ball Corporation (NYSE:BLL), Baker Hughes, a GE company (NYSE:BHGE), Agilent Technologies Inc. (NYSE:A), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks' market values resemble XLNX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLL,28,556069,1 BHGE,33,954876,15 A,37,1857520,-2 IDXX,29,509187,-8 Average,31.75,969413,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $969 million. That figure was $1040 million in XLNX's case. Agilent Technologies Inc. (NYSE:A) is the most popular stock in this table. On the other hand Ball Corporation (NYSE:BLL) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Xilinx, Inc. (NASDAQ:XLNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately XLNX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on XLNX were disappointed as the stock returned -2.9% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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