Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Hedge fund interest in Cincinnati Bell Inc. (NYSE:CBB) 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 Ashford Hospitality Trust, Inc. (NYSE:AHT), Whitestone REIT (NYSE:WSR), and Arvinas, Inc. (NASDAQ:ARVN) to gather more data points.
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.
[caption id="attachment_30576" align="aligncenter" width="501"] Glenn Russell Dubin of Highbridge Capital[/caption]
We're going to take a peek at the latest hedge fund action surrounding Cincinnati Bell Inc. (NYSE:CBB).
How are hedge funds trading Cincinnati Bell Inc. (NYSE:CBB)?
Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. By comparison, 14 hedge funds held shares or bullish call options in CBB a year ago. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Mario Gabelli's GAMCO Investors has the largest position in Cincinnati Bell Inc. (NYSE:CBB), worth close to $20.4 million, accounting for 0.2% of its total 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $5.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Israel Englander's Millennium Management, Noam Gottesman's GLG Partners and Glenn Russell Dubin's Highbridge Capital Management.
Seeing as Cincinnati Bell Inc. (NYSE:CBB) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds who sold off their positions entirely heading into Q3. Interestingly, William C. Martin's Raging Capital Management dumped the biggest stake of all the hedgies followed by Insider Monkey, comprising an estimated $7.3 million in stock, and Ric Dillon's Diamond Hill Capital was right behind this move, as the fund cut about $3.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cincinnati Bell Inc. (NYSE:CBB) but similarly valued. These stocks are Ashford Hospitality Trust, Inc. (NYSE:AHT), Whitestone REIT (NYSE:WSR), Arvinas, Inc. (NASDAQ:ARVN), and PDL BioPharma Inc. (NASDAQ:PDLI). This group of stocks' market caps are closest to CBB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AHT,9,39576,-6 WSR,5,16825,-1 ARVN,14,104327,0 PDLI,18,83457,2 Average,11.5,61046,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $38 million in CBB's case. PDL BioPharma Inc. (NASDAQ:PDLI) is the most popular stock in this table. On the other hand Whitestone REIT (NYSE:WSR) is the least popular one with only 5 bullish hedge fund positions. Cincinnati Bell Inc. (NYSE:CBB) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CBB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CBB were disappointed as the stock returned -44.2% 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.