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Is CIEN 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 at Insider Monkey have plowed through 887 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of Ciena Corporation (NASDAQ:CIEN).

Is CIEN stock a buy? The smart money was becoming less confident. The number of long hedge fund positions shrunk by 5 recently. Ciena Corporation (NASDAQ:CIEN) was in 24 hedge funds' portfolios at the end of December. The all time high for this statistic is 36. Our calculations also showed that CIEN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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' 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 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind we're going to take a look at the new hedge fund action encompassing Ciena Corporation (NASDAQ:CIEN).

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

At fourth quarter's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in CIEN a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is CIEN A Good Stock To Buy?
Is CIEN A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Ciena Corporation (NASDAQ:CIEN). Arrowstreet Capital has a $59.1 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which holds a $45 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism consist of Brandon Haley's Holocene Advisors, Richard Mashaal's Rima Senvest Management and Michael Rockefeller and Karl Kroeker's Woodline Partners. In terms of the portfolio weights assigned to each position Cumberland Associates / Springowl Associates allocated the biggest weight to Ciena Corporation (NASDAQ:CIEN), around 2.75% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, setting aside 1.46 percent of its 13F equity portfolio to CIEN.

Since Ciena Corporation (NASDAQ:CIEN) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of funds that decided to sell off their full holdings heading into Q1. Intriguingly, Ken Griffin's Citadel Investment Group dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $15.4 million in stock. Israel Englander's fund, Millennium Management, also dropped its stock, about $1.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds heading into Q1.

Let's check out hedge fund activity in other stocks similar to Ciena Corporation (NASDAQ:CIEN). We will take a look at Vedanta Ltd (NYSE:VEDL), Alteryx, Inc. (NYSE:AYX), Adaptive Biotechnologies Corporation (NASDAQ:ADPT), Deckers Outdoor Corp (NASDAQ:DECK), PRA Health Sciences Inc (NASDAQ:PRAH), Autoliv Inc. (NYSE:ALV), and Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH). This group of stocks' market valuations match CIEN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VEDL,10,68919,1 AYX,42,1458411,1 ADPT,30,3096715,4 DECK,45,1300910,-9 PRAH,23,214759,-1 ALV,26,808610,7 NCLH,40,334617,14 Average,30.9,1040420,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $1040 million. That figure was $314 million in CIEN's case. Deckers Outdoor Corp (NASDAQ:DECK) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 10 bullish hedge fund positions. Ciena Corporation (NASDAQ:CIEN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CIEN is 40. 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 negative signal and 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 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately CIEN wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); CIEN investors were disappointed as the stock returned 3.8% since the end of December (through 4/19) 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 most of these stocks already outperformed the market in 2020.

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

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