Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title "Recession is Imminent: We Need A Travel Ban NOW". We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Altice USA, Inc. (NYSE:ATUS).
Is Altice USA, Inc. (NYSE:ATUS) worth your attention right now? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund bets fell by 1 in recent months. Our calculations also showed that ATUS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 41 percentage points since March 2017 (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 leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let's go over the new hedge fund action surrounding Altice USA, Inc. (NYSE:ATUS).
How have hedgies been trading Altice USA, Inc. (NYSE:ATUS)?
Heading into the first quarter of 2020, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from one quarter earlier. By comparison, 51 hedge funds held shares or bullish call options in ATUS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Soroban Capital Partners was the largest shareholder of Altice USA, Inc. (NYSE:ATUS), with a stake worth $710.8 million reported as of the end of September. Trailing Soroban Capital Partners was Melvin Capital Management, which amassed a stake valued at $260.4 million. Renaissance Technologies, Pelham Capital, and Zimmer Partners 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 Pelham Capital allocated the biggest weight to Altice USA, Inc. (NYSE:ATUS), around 26% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, dishing out 19.03 percent of its 13F equity portfolio to ATUS.
Since Altice USA, Inc. (NYSE:ATUS) has experienced declining sentiment from hedge fund managers, we can see that there was a specific group of fund managers who sold off their positions entirely by the end of the third quarter. Interestingly, John Armitage's Egerton Capital Limited cut the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth about $201.8 million in stock. Phill Gross and Robert Atchinson's fund, Adage Capital Management, also dumped its stock, about $48.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Altice USA, Inc. (NYSE:ATUS) but similarly valued. These stocks are Arch Capital Group Ltd. (NASDAQ:ACGL), Church & Dwight Co., Inc. (NYSE:CHD), Discovery Communications Inc. (NASDAQ:DISCA), and Cincinnati Financial Corporation (NASDAQ:CINF). This group of stocks' market valuations resemble ATUS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACGL,23,1250755,1 CHD,37,359916,0 DISCA,38,290567,8 CINF,31,543386,7 Average,32.25,611156,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $611 million. That figure was $3047 million in ATUS's case. Discovery Communications Inc. (NASDAQ:DISCA) is the most popular stock in this table. On the other hand Arch Capital Group Ltd. (NASDAQ:ACGL) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Altice USA, Inc. (NYSE:ATUS) is more popular among hedge funds. 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 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately ATUS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ATUS were disappointed as the stock returned -17.2% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.