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Were Hedge Funds Right About Crowding Into Altice USA, Inc. (ATUS)?

Abigail Fisher
·6 min read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Altice USA, Inc. (NYSE:ATUS).

Altice USA, Inc. (NYSE:ATUS) was in 57 hedge funds' portfolios at the end of June. The all time high for this statistics is 55. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ATUS has seen an increase in hedge fund interest recently. There were 47 hedge funds in our database with ATUS holdings at the end of March. Our calculations also showed that ATUS isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

Scott Ferguson Sachem Head Capital
Scott Ferguson Sachem Head Capital

Scott Ferguson of Sachem Head Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's view the recent hedge fund action encompassing Altice USA, Inc. (NYSE:ATUS).

Hedge fund activity in Altice USA, Inc. (NYSE:ATUS)

At Q2's end, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the first quarter of 2020. On the other hand, there were a total of 45 hedge funds with a bullish position in ATUS a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Eric W. Mandelblatt and Gaurav Kapadia's Soroban Capital Partners has the number one position in Altice USA, Inc. (NYSE:ATUS), worth close to $563.5 million, accounting for 7.2% of its total 13F portfolio. The second largest stake is held by Palestra Capital Management, led by Andrew Immerman and Jeremy Schiffman, holding a $240.5 million position; the fund has 6% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Stuart J. Zimmer's Zimmer Partners, Ross Turner's Pelham Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to Altice USA, Inc. (NYSE:ATUS), around 21.72% of its 13F portfolio. Pelham Capital is also relatively very bullish on the stock, earmarking 20.21 percent of its 13F equity portfolio to ATUS.

Now, some big names were leading the bulls' herd. Sachem Head Capital, managed by Scott Ferguson, established the largest position in Altice USA, Inc. (NYSE:ATUS). Sachem Head Capital had $85.7 million invested in the company at the end of the quarter. Karthik Sarma's SRS Investment Management also initiated a $54.9 million position during the quarter. The other funds with brand new ATUS positions are Ike Kier and Ilya Zaides's KG Funds Management, Beeneet Kothari's Tekne Capital Management, and Michael Rockefeller and KarláKroeker's Woodline Partners.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Altice USA, Inc. (NYSE:ATUS) but similarly valued. These stocks are M&T Bank Corporation (NYSE:MTB), Sun Communities Inc (NYSE:SUI), Magna International Inc. (NYSE:MGA), Leidos Holdings Inc (NYSE:LDOS), Wix.Com Ltd (NASDAQ:WIX), Masco Corporation (NYSE:MAS), and The Liberty SiriusXM Group (NASDAQ:LSXMA). This group of stocks' market values match ATUS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTB,30,658440,9 SUI,30,436381,2 MGA,19,467472,-3 LDOS,35,617234,5 WIX,27,1258178,-2 MAS,40,827096,6 LSXMA,46,1294569,-2 Average,32.4,794196,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $794 million. That figure was $2577 million in ATUS's case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand Magna International Inc. (NYSE:MGA) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Altice USA, Inc. (NYSE:ATUS) is more popular among hedge funds. Our overall hedge fund sentiment score for ATUS is 90. 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 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on ATUS as the stock returned 27% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.

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