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Is Analog Devices (ADI) Stock A Buy or Sell?

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·6 min read
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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 887 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31st holdings, data that is available nowhere else. Should you consider Analog Devices, Inc. (NASDAQ:ADI) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is Analog Devices (ADI) stock a buy or sell? Investors who are in the know were turning bullish. The number of long hedge fund bets improved by 6 in recent months. Analog Devices, Inc. (NASDAQ:ADI) was in 58 hedge funds' portfolios at the end of December. The all time high for this statistic is 52. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ADI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here).

Eric Mandelblatt Soroban Capital Partners
Eric Mandelblatt Soroban Capital Partners

Eric Mandelblatt of Soroban Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). With all of this in mind we're going to check out the recent hedge fund action regarding Analog Devices, Inc. (NASDAQ:ADI).

Do Hedge Funds Think ADI Is A Good Stock To Buy Now?

At fourth quarter's end, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. By comparison, 51 hedge funds held shares or bullish call options in ADI a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is ADI A Good Stock To Buy?
Is ADI A Good Stock To Buy?

More specifically, Generation Investment Management was the largest shareholder of Analog Devices, Inc. (NASDAQ:ADI), with a stake worth $865 million reported as of the end of December. Trailing Generation Investment Management was Cantillon Capital Management, which amassed a stake valued at $725.5 million. Soroban Capital Partners, Citadel Investment Group, and First Pacific Advisors LLC 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 Totem Point Management allocated the biggest weight to Analog Devices, Inc. (NASDAQ:ADI), around 5.7% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, dishing out 5.44 percent of its 13F equity portfolio to ADI.

Consequently, key money managers have jumped into Analog Devices, Inc. (NASDAQ:ADI) headfirst. Holocene Advisors, managed by Brandon Haley, created the biggest position in Analog Devices, Inc. (NASDAQ:ADI). Holocene Advisors had $188.7 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman's Palestra Capital Management also made a $166.7 million investment in the stock during the quarter. The other funds with brand new ADI positions are Gabriel Plotkin's Melvin Capital Management, John Armitage's Egerton Capital Limited, and Ricky Sandler's Eminence Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Analog Devices, Inc. (NASDAQ:ADI) but similarly valued. These stocks are Equinor ASA (NYSE:EQNR), Moody's Corporation (NYSE:MCO), Twilio Inc. (NYSE:TWLO), Humana Inc (NYSE:HUM), Illumina, Inc. (NASDAQ:ILMN), Westpac Banking Corporation (NYSE:WBK), and Banco Santander, S.A. (NYSE:SAN). This group of stocks' market values resemble ADI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQNR,18,238582,-2 MCO,59,11352402,-1 TWLO,94,5011455,23 HUM,59,3966420,-2 ILMN,45,1747647,1 WBK,3,29715,-1 SAN,14,415472,0 Average,41.7,3251670,2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.7 hedge funds with bullish positions and the average amount invested in these stocks was $3252 million. That figure was $5320 million in ADI's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 3 bullish hedge fund positions. Analog Devices, Inc. (NASDAQ:ADI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADI is 70.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately ADI wasn't nearly as popular as these 30 stocks and hedge funds that were betting on ADI were disappointed as the stock returned 3.3% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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