"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 Ribbon Communications Inc. (NASDAQ:RBBN) and see how it was affected.
Is Ribbon Communications Inc. (NASDAQ:RBBN) the right pick for your portfolio? Prominent investors are taking an optimistic view. The number of long hedge fund positions moved up by 6 recently. Our calculations also showed that RBBN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RBBN was in 17 hedge funds' portfolios at the end of September. There were 11 hedge funds in our database with RBBN 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.
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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="600"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's analyze the new hedge fund action encompassing Ribbon Communications Inc. (NASDAQ:RBBN).
Hedge fund activity in Ribbon Communications Inc. (NASDAQ:RBBN)
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 55% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RBBN over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the largest position in Ribbon Communications Inc. (NASDAQ:RBBN), worth close to $12.1 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Brett Hendrickson of Nokomis Capital, with a $11.5 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions consist of Chuck Royce's Royce & Associates, David E. Shaw's D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Nokomis Capital allocated the biggest weight to Ribbon Communications Inc. (NASDAQ:RBBN), around 2.49% of its 13F portfolio. Engine Capital is also relatively very bullish on the stock, setting aside 0.32 percent of its 13F equity portfolio to RBBN.
Now, key money managers were breaking ground themselves. Magnetar Capital, managed by Alec Litowitz and Ross Laser, assembled the most valuable position in Ribbon Communications Inc. (NASDAQ:RBBN). Magnetar Capital had $1 million invested in the company at the end of the quarter. Thomas Bailard's Bailard Inc also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new RBBN investors: Peter Algert and Kevin Coldiron's Algert Coldiron Investors, David Harding's Winton Capital Management, and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Ribbon Communications Inc. (NASDAQ:RBBN) but similarly valued. We will take a look at QuinStreet Inc (NASDAQ:QNST), Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), Corenergy Infrastructure Trust Inc (NYSE:CORR), and Innophos Holdings, Inc. (NASDAQ:IPHS). This group of stocks' market values resemble RBBN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QNST,19,176526,-2 SOI,9,67101,-5 CORR,9,66642,-1 IPHS,12,42749,0 Average,12.25,88255,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $47 million in RBBN's case. QuinStreet Inc (NASDAQ:QNST) is the most popular stock in this table. On the other hand Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) is the least popular one with only 9 bullish hedge fund positions. Ribbon Communications Inc. (NASDAQ:RBBN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RBBN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RBBN were disappointed as the stock returned -49.8% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.