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Should You Buy United States Cellular Corporation (USM)?

Nina Todic

During the first half of the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by about 4 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of United States Cellular Corporation (NYSE:USM) and see how the stock is affected by the recent hedge fund activity.

United States Cellular Corporation (NYSE:USM) has experienced an increase in hedge fund sentiment of late. USM was in 15 hedge funds' portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with USM positions at the end of the previous quarter. Our calculations also showed that usm isn't among the 30 most popular stocks among hedge funds.

To most shareholders, hedge funds are perceived as underperforming, outdated financial vehicles of the past. While there are greater than 8,000 funds trading at the moment, Our experts choose to focus on the elite of this group, around 700 funds. Most estimates calculate that this group of people handle the majority of the hedge fund industry's total asset base, and by shadowing their finest investments, Insider Monkey has unearthed numerous investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship hedge fund strategy surpassed the S&P 500 index by 6 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.

Mario Gabelli

We're going to review the key hedge fund action regarding United States Cellular Corporation (NYSE:USM).

How are hedge funds trading United States Cellular Corporation (NYSE:USM)?

At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the second quarter of 2018. By comparison, 11 hedge funds held shares or bullish call options in USM heading into this year. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

No of Hedge Funds with USM Positions

Among these funds, GAMCO Investors held the most valuable stake in United States Cellular Corporation (NYSE:USM), which was worth $108.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $41.1 million worth of shares. Moreover, Millennium Management, D E Shaw, and Arrowstreet Capital were also bullish on United States Cellular Corporation (NYSE:USM), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in United States Cellular Corporation (NYSE:USM). Arrowstreet Capital had $7 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $0.5 million investment in the stock during the quarter. The other funds with brand new USM positions are Jeffrey Talpins's Element Capital Management, Joel Greenblatt's Gotham Asset Management, and Matthew Hulsizer's PEAK6 Capital Management.

Let's check out hedge fund activity in other stocks similar to United States Cellular Corporation (NYSE:USM). These stocks are LaSalle Hotel Properties (NYSE:LHO), The New York Times Company (NYSE:NYT), Chemical Financial Corporation (NASDAQ:CHFC), and Navistar International Corp (NYSE:NAV). This group of stocks' market valuations are closest to USM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LHO,28,744016,-7 NYT,34,897710,6 CHFC,8,17870,4 NAV,26,1659346,4 Average,24,829736,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $830 million. That figure was $192 million in USM's case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Chemical Financial Corporation (NASDAQ:CHFC) is the least popular one with only 8 bullish hedge fund positions. United States Cellular Corporation (NYSE:USM) 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 NYT might be a better candidate to consider a long position.

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

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