You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Is InterDigital, Inc. (NASDAQ:IDCC) a buy, sell, or hold? Prominent investors are taking a bullish view. The number of bullish hedge fund bets advanced by 3 recently. Our calculations also showed that IDCC isn't among the 30 most popular stocks among hedge funds. IDCC was in 21 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 18 hedge funds in our database with IDCC holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_30576" align="aligncenter" width="501"] Glenn Russell Dubin of Highbridge Capital[/caption]
We're going to take a look at the key hedge fund action surrounding InterDigital, Inc. (NASDAQ:IDCC).
What have hedge funds been doing with InterDigital, Inc. (NASDAQ:IDCC)?
At Q4's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IDCC over the last 14 quarters. 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, Renaissance Technologies was the largest shareholder of InterDigital, Inc. (NASDAQ:IDCC), with a stake worth $43.8 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $34.4 million. First Pacific Advisors LLC, AQR Capital Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Highbridge Capital Management, managed by Glenn Russell Dubin, assembled the most outsized position in InterDigital, Inc. (NASDAQ:IDCC). Highbridge Capital Management had $21 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $3.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, Matthew Tewksbury's Stevens Capital Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's go over hedge fund activity in other stocks similar to InterDigital, Inc. (NASDAQ:IDCC). These stocks are Conduent Incorporated (NYSE:CNDT), Sunoco LP (NYSE:SUN), Liberty Expedia Holdings, Inc. (NASDAQ:LEXEA), and WESCO International, Inc. (NYSE:WCC). This group of stocks' market caps match IDCC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNDT,35,487994,1 SUN,7,11185,0 LEXEA,26,354597,2 WCC,26,387245,0 Average,23.5,310255,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $139 million in IDCC's case. Conduent Incorporated (NYSE:CNDT) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 7 bullish hedge fund positions. InterDigital, Inc. (NASDAQ:IDCC) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately IDCC wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); IDCC investors were disappointed as the stock returned 4.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.