Did Hedge Funds Drop The Ball On ADT Corp (ADT) ?

Is ADT Corp (NYSE:ADT) a good equity to bet on 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.

ADT Corp (NYSE:ADT) has seen a decrease in hedge fund sentiment in recent months. Our calculations also showed that ADT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Larry Robbins of Glenview Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the recent hedge fund action regarding ADT Corp (NYSE:ADT).

How are hedge funds trading ADT Corp (NYSE:ADT)?

Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the second quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in ADT 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.

Is ADT A Good Stock To Buy?

The largest stake in ADT Corp (NYSE:ADT) was held by Miller Value Partners, which reported holding $101.6 million worth of stock at the end of September. It was followed by Greenhouse Funds with a $23.5 million position. Other investors bullish on the company included Arrowstreet Capital, GLG Partners, and D E Shaw. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to ADT Corp (NYSE:ADT), around 4.76% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, earmarking 4.09 percent of its 13F equity portfolio to ADT.

Since ADT Corp (NYSE:ADT) has experienced falling interest from hedge fund managers, it’s safe to say that there exists a select few hedge funds that elected to cut their entire stakes last quarter. It’s worth mentioning that Joseph Mathias’s Concourse Capital Management cut the biggest stake of the 750 funds monitored by Insider Monkey, valued at about $1.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ADT Corp (NYSE:ADT) but similarly valued. These stocks are Stericycle Inc (NASDAQ:SRCL), Radian Group Inc (NYSE:RDN), ViaSat, Inc. (NASDAQ:VSAT), and Foot Locker, Inc. (NYSE:FL). All of these stocks’ market caps match ADT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SRCL 16 700061 0
RDN 22 178364 0
VSAT 27 1901555 -1
FL 32 546398 0
Average 24.25 831595 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $832 million. That figure was $161 million in ADT’s case. Foot Locker, Inc. (NYSE:FL) is the most popular stock in this table. On the other hand Stericycle Inc (NASDAQ:SRCL) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks ADT Corp (NYSE:ADT) is even less popular than SRCL. Hedge funds clearly dropped the ball on ADT as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ADT as the stock returned 47.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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