Is ETM A Good Stock To Buy Now?
The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Entercom Communications Corp. (NYSE:ETM).
Is ETM a good stock to buy now? Hedge funds were getting less optimistic. The number of long hedge fund positions retreated by 1 recently. Entercom Communications Corp. (NYSE:ETM) was in 17 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 28. Our calculations also showed that ETM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with ETM holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 view the fresh hedge fund action encompassing Entercom Communications Corp. (NYSE:ETM).
Do Hedge Funds Think ETM Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in ETM a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Solas Capital Management held the most valuable stake in Entercom Communications Corp. (NYSE:ETM), which was worth $2.7 million at the end of the third quarter. On the second spot was D E Shaw which amassed $2.4 million worth of shares. Tensile Capital, Millennium Management, and Arrowstreet Capital 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 Solas Capital Management allocated the biggest weight to Entercom Communications Corp. (NYSE:ETM), around 2.62% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, dishing out 0.36 percent of its 13F equity portfolio to ETM.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Caxton Associates LP. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ETM as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Entercom Communications Corp. (NYSE:ETM) but similarly valued. These stocks are Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), EMX Royalty Corporation (NYSE:EMX), Old Second Bancorp Inc. (NASDAQ:OSBC), U.S. Silica Holdings Inc (NYSE:SLCA), Fly Leasing Ltd (NYSE:FLY), Ruhnn Holding Limited (NASDAQ:RUHN), and GreenPower Motor Company Inc. (NASDAQ:GP). This group of stocks' market values resemble ETM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NGVC,13,24830,1 EMX,3,9203,1 OSBC,10,12116,-2 SLCA,16,57788,0 FLY,7,12567,-3 RUHN,3,595,1 GP,2,1296,2 Average,7.7,16914,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.7 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $14 million in ETM's case. U.S. Silica Holdings Inc (NYSE:SLCA) is the most popular stock in this table. On the other hand GreenPower Motor Company Inc. (NASDAQ:GP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Entercom Communications Corp. (NYSE:ETM) is more popular among hedge funds. Our overall hedge fund sentiment score for ETM is 72.2. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on ETM as the stock returned 44.7% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
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