In this article you are going to find out whether hedge funds think Infinera Corp. (NASDAQ:INFN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Infinera Corp. (NASDAQ:INFN) an exceptional stock to buy now? Money managers are in a pessimistic mood. The number of bullish hedge fund bets were cut by 3 recently. Our calculations also showed that INFN 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_30614" align="aligncenter" width="400"] Howard Marks of Oaktree Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to go over the new hedge fund action regarding Infinera Corp. (NASDAQ:INFN).
What does smart money think about Infinera Corp. (NASDAQ:INFN)?
Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the fourth quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in INFN a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Oaktree Capital Management was the largest shareholder of Infinera Corp. (NASDAQ:INFN), with a stake worth $133.4 million reported as of the end of September. Trailing Oaktree Capital Management was Greenhouse Funds, which amassed a stake valued at $27.5 million. Citadel Investment Group, Divisar Capital, and Royce & Associates 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 Greenhouse Funds allocated the biggest weight to Infinera Corp. (NASDAQ:INFN), around 6.69% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, earmarking 3.92 percent of its 13F equity portfolio to INFN.
Seeing as Infinera Corp. (NASDAQ:INFN) has faced a decline in interest from hedge fund managers, we can see that there lies a certain "tier" of fund managers that decided to sell off their positions entirely in the first quarter. At the top of the heap, Richard Driehaus's Driehaus Capital dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling close to $6.8 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund dropped about $6.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Infinera Corp. (NASDAQ:INFN) but similarly valued. We will take a look at Retail Opportunity Investments Corp (NASDAQ:ROIC), Fluor Corporation (NYSE:FLR), Norbord Inc. (NYSE:OSB), and Black Stone Minerals LP (NYSE:BSM). This group of stocks' market caps are similar to INFN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROIC,18,43584,-3 FLR,24,94067,0 OSB,12,19441,-4 BSM,3,2190,-1 Average,14.25,39821,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $203 million in INFN's case. Fluor Corporation (NYSE:FLR) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 3 bullish hedge fund positions. Infinera Corp. (NASDAQ:INFN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately INFN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); INFN investors were disappointed as the stock returned 10.9% during the second quarter 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 in 2020.
Disclosure: None. This article was originally published at Insider Monkey.