U.S. markets close in 2 hours 50 minutes

Should You Buy AT&T Inc. (T)?

Abigail Fisher

In this article we will take a look at whether hedge funds think AT&T Inc. (NYSE:T) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

AT&T Inc. (NYSE:T) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. Our calculations also showed that T isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26345" align="aligncenter" width="399"] Paul Singer of Elliott Management[/caption]

Paul Singer ELLIOTT MANAGEMENT

At Insider Monkey we leave no stone unturned when looking for the next great investment idea.  For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We interview hedge fund managers and ask them about best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's view the recent hedge fund action surrounding AT&T Inc. (NYSE:T).

Hedge fund activity in AT&T Inc. (NYSE:T)

Heading into the second quarter of 2020, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards T over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Elliott Management held the most valuable stake in AT&T Inc. (NYSE:T), which was worth $306.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $298.6 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and D E Shaw 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 Mountain Road Advisors allocated the biggest weight to AT&T Inc. (NYSE:T), around 5.93% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, dishing out 5.07 percent of its 13F equity portfolio to T.

Consequently, some big names were breaking ground themselves. Renaissance Technologies, initiated the most valuable position in AT&T Inc. (NYSE:T). Renaissance Technologies had $298.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also made a $54 million investment in the stock during the quarter. The other funds with new positions in the stock are Martin Taylor's Crake Asset Management, David Costen Haley's HBK Investments, and Donald Sussman's Paloma Partners.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as AT&T Inc. (NYSE:T) but similarly valued. We will take a look at The Home Depot, Inc. (NYSE:HD), Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), and Novartis AG (NYSE:NVS). This group of stocks' market valuations resemble T's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HD,87,3585582,-4 MRK,78,5025553,1 KO,55,19901708,4 NVS,30,2034578,0 Average,62.5,7636855,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 62.5 hedge funds with bullish positions and the average amount invested in these stocks was $7637 million. That figure was $1646 million in T's case. The Home Depot, Inc. (NYSE:HD) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 bullish hedge fund positions. AT&T Inc. (NYSE:T) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately T wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); T investors were disappointed as the stock returned 4.3% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

Related Content