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Hedge Fund Sentiment Is Stagnant On Ribbon Communications Inc. (RBBN)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Ribbon Communications Inc. (NASDAQ:RBBN)? The smart money sentiment can provide an answer to this question.

Hedge fund interest in Ribbon Communications Inc. (NASDAQ:RBBN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare RBBN to other stocks including Cresud S.A.C.I.F. y A. (NASDAQ:CRESY), KNOT Offshore Partners LP (NYSE:KNOP), and Flexion Therapeutics Inc (NASDAQ:FLXN) to get a better sense of its popularity.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Let’s view the latest hedge fund action encompassing Ribbon Communications Inc. (NASDAQ:RBBN).

What does the smart money think about Ribbon Communications Inc. (NASDAQ:RBBN)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, no change from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards RBBN over the last 13 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

No of Hedge Funds with RBBN Positions

Among these funds, Renaissance Technologies held the most valuable stake in Ribbon Communications Inc. (NASDAQ:RBBN), which was worth $13.2 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $13 million worth of shares. Moreover, D E Shaw, Engine Capital, and AQR Capital Management were also bullish on Ribbon Communications Inc. (NASDAQ:RBBN), allocating a large percentage of their portfolios to this stock.

Because Ribbon Communications Inc. (NASDAQ:RBBN) has experienced a decline in interest from the smart money, logic holds that there was a specific group of hedgies that decided to sell off their positions entirely in the third quarter. At the top of the heap, Randall Yuen’s Jafra Capital Management said goodbye to the largest position of the “upper crust” of funds tracked by Insider Monkey, comprising close to $2.1 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $0.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ribbon Communications Inc. (NASDAQ:RBBN) but similarly valued. These stocks are Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY), KNOT Offshore Partners LP (NYSE:KNOP), Flexion Therapeutics Inc (NASDAQ:FLXN), and China Yuchai International Limited (NYSE:CYD). This group of stocks’ market caps are similar to RBBN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRESY 5 23350 0
KNOP 4 8924 0
FLXN 15 111576 2
CYD 8 73139 0
Average 8 54247 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $42 million in RBBN’s case. Flexion Therapeutics Inc (NASDAQ:FLXN) is the most popular stock in this table. On the other hand KNOT Offshore Partners LP (NYSE:KNOP) is the least popular one with only 4 bullish hedge fund positions. Ribbon Communications Inc. (NASDAQ:RBBN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FLXN might be a better candidate to consider a long position.

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

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