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Cable One Inc (CABO): Hedge Funds Cashed Out Too Early

Reymerlyn Martin

"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Cable One Inc (NYSE:CABO) and see how it was affected.

Is Cable One Inc (NYSE:CABO) a bargain? Investors who are in the know are turning less bullish. The number of bullish hedge fund positions retreated by 3 lately. Our calculations also showed that CABO isn't among the 30 most popular stocks among hedge funds (see the video below). CABO was in 15 hedge funds' portfolios at the end of the second quarter of 2019. There were 18 hedge funds in our database with CABO positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the latest hedge fund action encompassing Cable One Inc (NYSE:CABO).

How have hedgies been trading Cable One Inc (NYSE:CABO)?

At Q2's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CABO over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

CABO_oct2019

The largest stake in Cable One Inc (NYSE:CABO) was held by Renaissance Technologies, which reported holding $326.2 million worth of stock at the end of March. It was followed by Wallace Capital Management with a $73 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and GLG Partners.

Because Cable One Inc (NYSE:CABO) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their positions entirely by the end of the second quarter. Intriguingly, Lou Simpson's SQ Advisors cut the biggest stake of the 750 funds tracked by Insider Monkey, worth about $151.7 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund cut about $1.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cable One Inc (NYSE:CABO) but similarly valued. We will take a look at Royal Gold, Inc (NASDAQ:RGLD), Anaplan, Inc. (NYSE:PLAN), Perrigo Company (NASDAQ:PRGO), and CyrusOne Inc (NASDAQ:CONE). All of these stocks' market caps are similar to CABO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGLD,19,68231,2 PLAN,37,1639092,15 PRGO,21,720516,3 CONE,18,173157,1 Average,23.75,650249,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $479 million in CABO's case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Cable One Inc (NYSE:CABO) is even less popular than CONE. Hedge funds clearly dropped the ball on CABO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CABO as the stock returned 7.3% during the third quarter and outperformed the market by an even larger margin.

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

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