Is NetGear, Inc. (NTGR) A Good Stock To Buy?

Abigail Fisher

Updated Sat, Dec 8, 2018, 5:37 PM

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.

NetGear, Inc. (NASDAQ:NTGR) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds' portfolios at the end of the third quarter of 2018. At the end of this article we will also compare NTGR to other stocks including Uxin Limited (NASDAQ:UXIN), Wingstop Inc (NASDAQ:WING), and Cubic Corporation (NYSE:CUB) to get a better sense of its popularity.

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 the 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 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 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.

We're going to take a look at the fresh hedge fund action regarding NetGear, Inc. (NASDAQ:NTGR).

What have hedge funds been doing with NetGear, Inc. (NASDAQ:NTGR)?

At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, no change from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in NTGR over the last 13 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Lion Point, managed by Didric Cederholm, holds the largest position in NetGear, Inc. (NASDAQ:NTGR). Lion Point has a $8 million position in the stock, comprising 0.7% of its 13F portfolio. The second most bullish fund manager is John Orrico of Water Island Capital, with a $7.6 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions include Jim Simons's Renaissance Technologies, Benjamin A. Smith's Laurion Capital Management and John Overdeck and David Siegel's Two Sigma Advisors.

Judging by the fact that NetGear, Inc. (NASDAQ:NTGR) has experienced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of funds who sold off their positions entirely by the end of the third quarter. It's worth mentioning that Charles Frumberg's Emancipation Capital cut the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth close to $0.9 million in stock. Ken Griffin's fund, Citadel Investment Group, also dumped its stock, about $0.7 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to NetGear, Inc. (NASDAQ:NTGR). We will take a look at Uxin Limited (NASDAQ:UXIN), Wingstop Inc (NASDAQ:WING), Cubic Corporation (NYSE:CUB), and Gold Fields Limited (NYSE:GFI). This group of stocks' market caps match NTGR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UXIN,5,197910,-7 WING,17,94474,-1 CUB,18,103213,5 GFI,10,61577,-2 Average,12.5,114,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $37 million in NTGR's case. Cubic Corporation (NYSE:CUB) is the most popular stock in this table. On the other hand Uxin Limited (NASDAQ:UXIN) is the least popular one with only 5 bullish hedge fund positions. NetGear, Inc. (NASDAQ:NTGR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard CUB might be a better candidate to consider a long position.

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

Related Content