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Did Hedge Funds Make The Right Call On iHeartMedia, Inc. (IHRT)?

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 iHeartMedia, Inc. (NASDAQ:IHRT) and determine whether hedge funds had an edge regarding this stock.

iHeartMedia, Inc. (NASDAQ:IHRT) was in 28 hedge funds’ portfolios at the end of the first quarter of 2020. IHRT investors should be aware of a decrease in hedge fund sentiment lately. There were 31 hedge funds in our database with IHRT positions at the end of the previous quarter. Our calculations also showed that IHRT 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.

If you’d ask most traders, hedge funds are seen as underperforming, old financial tools of years past. While there are more than 8000 funds trading at present, Our experts look at the moguls of this group, about 850 funds. Most estimates calculate that this group of people shepherd bulk of the hedge fund industry’s total asset base, and by watching their matchless equity investments, Insider Monkey has identified many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the key hedge fund action regarding iHeartMedia, Inc. (NASDAQ:IHRT).

Hedge fund activity in iHeartMedia, Inc. (NASDAQ:IHRT)

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IHRT over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is IHRT A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Don Morgan’s Brigade Capital has the largest position in iHeartMedia, Inc. (NASDAQ:IHRT), worth close to $20.5 million, amounting to 0.9% of its total 13F portfolio. The second largest stake is held by OZ Management, managed by Daniel S. Och, which holds a $19.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Jon Bauer’s Contrarian Capital, Kenneth Mario Garschina’s Mason Capital Management and Jeffrey Hoffner’s Engle Capital. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to iHeartMedia, Inc. (NASDAQ:IHRT), around 7.78% of its 13F portfolio. Lonestar Capital Management is also relatively very bullish on the stock, earmarking 5.16 percent of its 13F equity portfolio to IHRT.

Since iHeartMedia, Inc. (NASDAQ:IHRT) has witnessed bearish sentiment from hedge fund managers, we can see that there was a specific group of funds that slashed their full holdings heading into Q4. It’s worth mentioning that James Dondero’s Highland Capital Management sold off the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $1.9 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund sold off about $1.7 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to iHeartMedia, Inc. (NASDAQ:IHRT). We will take a look at SP Plus Corp (NASDAQ:SP), Camden National Corporation (NASDAQ:CAC), Mercer International Inc. (NASDAQ:MERC), and Origin Bancorp, Inc. (NASDAQ:OBNK). This group of stocks’ market values match IHRT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SP 11 65053 -2
CAC 10 43580 -3
MERC 10 84956 -4
OBNK 5 10774 -3
Average 9 51091 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $107 million in IHRT’s case. SP Plus Corp (NASDAQ:SP) is the most popular stock in this table. On the other hand Origin Bancorp, Inc. (NASDAQ:OBNK) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks iHeartMedia, Inc. (NASDAQ:IHRT) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately IHRT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IHRT were disappointed as the stock returned 14.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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