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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Ribbon Communications Inc. (NASDAQ:RBBN) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is RBBN a good stock to buy now? Hedge fund interest in Ribbon Communications Inc. (NASDAQ:RBBN) shares was flat at the end of last quarter. This is usually a negative indicator. 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 for a quick look at the top 5 stocks). 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 Universal Logistics Holdings, Inc. (NASDAQ:ULH), iHeartMedia, Inc. (NASDAQ:IHRT), and UMH Properties, Inc (NYSE:UMH) to gather more data points.
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.
Stephen Feinberg of Cerberus Capital Management
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. Now we're going to take a glance at the recent hedge fund action surrounding Ribbon Communications Inc. (NASDAQ:RBBN).
Do Hedge Funds Think RBBN Is A Good Stock To Buy Now?
At the end of September, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RBBN over the last 21 quarters. So, let's examine 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, Cerberus Capital Management, managed by Stephen Feinberg, holds the largest position in Ribbon Communications Inc. (NASDAQ:RBBN). Cerberus Capital Management has a $10.1 million position in the stock, comprising 0.4% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $4.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions consist of D. E. Shaw's D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and David Harding's Winton Capital Management. In terms of the portfolio weights assigned to each position Cerberus Capital Management allocated the biggest weight to Ribbon Communications Inc. (NASDAQ:RBBN), around 0.39% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to RBBN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Engineers Gate Manager. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let's now review hedge fund activity in other stocks similar to Ribbon Communications Inc. (NASDAQ:RBBN). These stocks are Universal Logistics Holdings, Inc. (NASDAQ:ULH), iHeartMedia, Inc. (NASDAQ:IHRT), UMH Properties, Inc (NYSE:UMH), ConnectOne Bancorp Inc (NASDAQ:CNOB), Trueblue Inc (NYSE:TBI), National Energy Services Reunited Corp. (NASDAQ:NESR), and MarineMax, Inc. (NYSE:HZO). 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 ULH,10,19878,1 IHRT,21,117374,-3 UMH,8,7977,2 CNOB,9,19690,-2 TBI,15,46144,1 NESR,8,26931,0 HZO,21,52688,0 Average,13.1,41526,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.1 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $21 million in RBBN's case. iHeartMedia, Inc. (NASDAQ:IHRT) is the most popular stock in this table. On the other hand UMH Properties, Inc (NYSE:UMH) is the least popular one with only 8 bullish hedge fund positions. Ribbon Communications Inc. (NASDAQ:RBBN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RBBN is 23.8. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on RBBN as the stock returned 90.2% since the end of the third quarter (through 12/8) 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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