Did Hedge Funds Make The Right Call On ADT Inc. (ADT)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards ADT Inc. (NYSE:ADT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

ADT Inc. (NYSE:ADT) shareholders have witnessed a decrease in enthusiasm from smart money recently. Our calculations also showed that ADT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Today there are plenty of formulas stock traders put to use to grade publicly traded companies. A pair of the most innovative formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the broader indices by a significant amount (see the details here).

Bill Miller

Bill Miller of Miller Value Partners

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 tripled 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a gander at the key hedge fund action encompassing ADT Inc. (NYSE:ADT).

What have hedge funds been doing with ADT Inc. (NYSE:ADT)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADT over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Miller Value Partners, managed by Bill Miller, holds the largest position in ADT Inc. (NYSE:ADT). Miller Value Partners has a $63.4 million position in the stock, comprising 4.1% of its 13F portfolio. On Miller Value Partners’s heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $13.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish consist of Joe Milano’s Greenhouse Funds, Israel Englander’s Millennium Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Miller Value Partners allocated the biggest weight to ADT Inc. (NYSE:ADT), around 4.08% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, earmarking 2.57 percent of its 13F equity portfolio to ADT.

Because ADT Inc. (NYSE:ADT) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there is a sect of money managers who were dropping their full holdings in the first quarter. It’s worth mentioning that David Gallo’s Valinor Management LLC said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, comprising about $0.7 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to ADT Inc. (NYSE:ADT). We will take a look at Williams-Sonoma, Inc. (NYSE:WSM), Floor & Decor Holdings, Inc. (NYSE:FND), Empire State Realty Trust Inc (NYSE:ESRT), and Seaboard Corporation (NYSE:SEB). This group of stocks’ market caps are closest to ADT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSM 26 182192 -3
FND 23 400020 -4
ESRT 16 151926 -2
SEB 15 108625 -3
Average 20 210691 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $99 million in ADT’s case. Williams-Sonoma, Inc. (NYSE:WSM) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSE:SEB) is the least popular one with only 15 bullish hedge fund positions. ADT Inc. (NYSE:ADT) is not the least popular stock in this group but hedge fund interest is still below average. 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on ADT as the stock returned 86% since the end of March and outperformed the market by an even larger margin.

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