How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Comtech Telecommunications Corp. (NASDAQ:CMTL).
Is Comtech Telecommunications Corp. (NASDAQ:CMTL) ready to rally soon? The best stock pickers are becoming hopeful. The number of long hedge fund positions went up by 6 lately. Our calculations also showed that CMTL isn't among the 30 most popular stocks among hedge funds. CMTL was in 20 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with CMTL positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a peek at the fresh hedge fund action regarding Comtech Telecommunications Corp. (NASDAQ:CMTL).
What have hedge funds been doing with Comtech Telecommunications Corp. (NASDAQ:CMTL)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CMTL over the last 15 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Huber Capital Management held the most valuable stake in Comtech Telecommunications Corp. (NASDAQ:CMTL), which was worth $30.4 million at the end of the first quarter. On the second spot was Royce & Associates which amassed $20.5 million worth of shares. Moreover, Renaissance Technologies, Marshall Wace LLP, and Millennium Management were also bullish on Comtech Telecommunications Corp. (NASDAQ:CMTL), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers were breaking ground themselves. Shannon River Fund Management, managed by Spencer M. Waxman, assembled the most valuable position in Comtech Telecommunications Corp. (NASDAQ:CMTL). Shannon River Fund Management had $4 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $2.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Paul Tudor Jones's Tudor Investment Corp, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.
Let's now take a look at hedge fund activity in other stocks similar to Comtech Telecommunications Corp. (NASDAQ:CMTL). These stocks are Universal Logistics Holdings, Inc. (NASDAQ:ULH), Aegion Corporation (NASDAQ:AEGN), National CineMedia, Inc. (NASDAQ:NCMI), and Hemisphere Media Group Inc (NASDAQ:HMTV). This group of stocks' market valuations resemble CMTL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ULH,10,21608,-1 AEGN,8,24550,-1 NCMI,18,34063,-1 HMTV,8,46712,2 Average,11,31733,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $90 million in CMTL's case. National CineMedia, Inc. (NASDAQ:NCMI) is the most popular stock in this table. On the other hand Aegion Corporation (NASDAQ:AEGN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Comtech Telecommunications Corp. (NASDAQ:CMTL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CMTL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CMTL were disappointed as the stock returned -6.1% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.