At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Iridium Communications Inc. (NASDAQ:IRDM).
Hedge fund interest in Iridium Communications Inc. (NASDAQ:IRDM) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Advanced Disposal Services, Inc. (NYSE:ADSW), KBR, Inc. (NYSE:KBR), and Noble Energy, Inc. (NYSE:NBL) to gather more data points. Our calculations also showed that IRDM 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.
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 58 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.
[caption id="attachment_375529" align="aligncenter" width="400"] Mario Gabelli of GAMCO Investors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a peek at the recent hedge fund action surrounding Iridium Communications Inc. (NASDAQ:IRDM).
What does smart money think about Iridium Communications Inc. (NASDAQ:IRDM)?
Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. By comparison, 12 hedge funds held shares or bullish call options in IRDM a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Iridium Communications Inc. (NASDAQ:IRDM) was held by Select Equity Group, which reported holding $82.6 million worth of stock at the end of September. It was followed by Silver Heights Capital Management with a $51.8 million position. Other investors bullish on the company included Renaissance Technologies, Brahman Capital, and GAMCO Investors. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to Iridium Communications Inc. (NASDAQ:IRDM), around 37.61% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, designating 2.93 percent of its 13F equity portfolio to IRDM.
Because Iridium Communications Inc. (NASDAQ:IRDM) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few fund managers who sold off their entire stakes by the end of the first quarter. At the top of the heap, Mika Toikka's AlphaCrest Capital Management said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, comprising close to $0.6 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $0.6 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Iridium Communications Inc. (NASDAQ:IRDM). These stocks are Advanced Disposal Services, Inc. (NYSE:ADSW), KBR, Inc. (NYSE:KBR), Noble Energy, Inc. (NYSE:NBL), and Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR). This group of stocks' market valuations resemble IRDM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADSW,21,739563,-1 KBR,28,424712,-1 NBL,35,382923,7 ARWR,22,160633,-4 Average,26.5,426958,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $229 million in IRDM's case. Noble Energy, Inc. (NYSE:NBL) is the most popular stock in this table. On the other hand Advanced Disposal Services, Inc. (NYSE:ADSW) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Iridium Communications Inc. (NASDAQ:IRDM) is even less popular than ADSW. Hedge funds dodged a bullet by taking a bearish stance towards IRDM. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but managed to beat the market by 14.8 percentage points. Unfortunately IRDM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); IRDM investors were disappointed as the stock returned 14.8% during the second quarter (through June 17th) 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 so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.