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Should You Avoid Consolidated Communications Holdings Inc (CNSL)?

Reymerlyn Martin

"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Consolidated Communications Holdings Inc (NASDAQ:CNSL).

Is Consolidated Communications Holdings Inc (NASDAQ:CNSL) a buy right now? Hedge funds are in a bearish mood. The number of long hedge fund positions retreated by 1 in recent months. Our calculations also showed that CNSL isn't among the 30 most popular stocks among hedge funds. CNSL was in 10 hedge funds' portfolios at the end of the third quarter of 2018. There were 11 hedge funds in our database with CNSL holdings at the end of the previous quarter.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Let's view the key hedge fund action surrounding Consolidated Communications Holdings Inc (NASDAQ:CNSL).

How are hedge funds trading Consolidated Communications Holdings Inc (NASDAQ:CNSL)?

At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in CNSL heading into this year. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

CNSL_dec2018

The largest stake in Consolidated Communications Holdings Inc (NASDAQ:CNSL) was held by Sirios Capital Management, which reported holding $5.3 million worth of stock at the end of September. It was followed by PEAK6 Capital Management with a $1.3 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and Renaissance Technologies.

Because Consolidated Communications Holdings Inc (NASDAQ:CNSL) has experienced declining sentiment from the smart money, we can see that there exists a select few fund managers who were dropping their entire stakes heading into Q3. At the top of the heap, James Dinan's York Capital Management dropped the biggest position of all the hedgies followed by Insider Monkey, totaling close to $9.1 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q3.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Consolidated Communications Holdings Inc (NASDAQ:CNSL) but similarly valued. We will take a look at WideOpenWest, Inc. (NYSE:WOW), Ambac Financial Group, Inc. (NASDAQ:AMBC), Independence Realty Trust Inc (NYSEMKT:IRT), and CBTX, Inc. (NASDAQ:CBTX). This group of stocks' market valuations resemble CNSL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WOW,11,41409,-1 AMBC,21,180511,2 IRT,11,54528,6 CBTX,8,26002,1 Average,12.75,75613,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $9 million in CNSL's case. Ambac Financial Group, Inc. (NASDAQ:AMBC) is the most popular stock in this table. On the other hand CBTX, Inc. (NASDAQ:CBTX) is the least popular one with only 8 bullish hedge fund positions. Consolidated Communications Holdings Inc (NASDAQ:CNSL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard AMBC might be a better candidate to consider a long position.

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

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