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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Harmonic Inc (NASDAQ:HLIT) changed recently.
Is HLIT a good stock to buy now? Harmonic Inc (NASDAQ:HLIT) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that HLIT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare HLIT to other stocks including Oyster Point Pharma, Inc. (NASDAQ:OYST), Forte Biosciences, Inc. (NASDAQ:FBRX), and Cars.com Inc. (NYSE:CARS) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
Jeremy Mindich of Scopia Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's take a glance at the latest hedge fund action regarding Harmonic Inc (NASDAQ:HLIT).
Do Hedge Funds Think HLIT Is A Good Stock To Buy Now?
At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HLIT over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Harmonic Inc (NASDAQ:HLIT) was held by Scopia Capital, which reported holding $52.1 million worth of stock at the end of September. It was followed by Prelude Capital (previously Springbok Capital) with a $6.4 million position. Other investors bullish on the company included Divisar Capital, Arrowstreet Capital, and Royce & Associates. In terms of the portfolio weights assigned to each position Scopia Capital allocated the biggest weight to Harmonic Inc (NASDAQ:HLIT), around 6.15% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, designating 1.45 percent of its 13F equity portfolio to HLIT.
Since Harmonic Inc (NASDAQ:HLIT) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedgies that elected to cut their entire stakes by the end of the third quarter. It's worth mentioning that Renaissance Technologies dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, worth close to $0.9 million in stock. Eric Singer's fund, VIEX Capital Advisors, also dropped its stock, about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Harmonic Inc (NASDAQ:HLIT). We will take a look at Oyster Point Pharma, Inc. (NASDAQ:OYST), Forte Biosciences, Inc. (NASDAQ:FBRX), Cars.com LLC (NYSE:CARS), MSG Networks Inc (NYSE:MSGN), Meridian Bancorp, Inc. (NASDAQ:EBSB), Freeline Therapeutics Holdings plc (NASDAQ:FRLN), and Capstead Mortgage Corporation (NYSE:CMO). This group of stocks' market valuations resemble HLIT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OYST,14,19641,0 FBRX,6,72274,4 CARS,22,133586,1 MSGN,26,189325,1 EBSB,14,52861,-2 FRLN,9,29817,9 CMO,15,60667,2 Average,15.1,79739,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $75 million in HLIT's case. MSG Networks Inc (NYSE:MSGN) is the most popular stock in this table. On the other hand Forte Biosciences, Inc. (NASDAQ:FBRX) is the least popular one with only 6 bullish hedge fund positions. Harmonic Inc (NASDAQ:HLIT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HLIT is 51.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on HLIT as the stock returned 26.3% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
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