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 Infinera Corp. (NASDAQ:INFN) and determine whether hedge funds had an edge regarding this stock.
Infinera Corp. (NASDAQ:INFN) has experienced an increase in activity from the world’s largest hedge funds lately. Infinera Corp. (NASDAQ:INFN) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 31. There were 14 hedge funds in our database with INFN positions at the end of the first quarter. Our calculations also showed that INFN 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.
At the moment there are plenty of metrics shareholders can use to analyze their holdings. Two of the most innovative metrics are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top money managers can beat the broader indices by a very impressive margin (see the details here).
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. Now let’s analyze the recent hedge fund action encompassing Infinera Corp. (NASDAQ:INFN).
What have hedge funds been doing with Infinera Corp. (NASDAQ:INFN)?
At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards INFN over the last 20 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.
The largest stake in Infinera Corp. (NASDAQ:INFN) was held by Oaktree Capital Management, which reported holding $149 million worth of stock at the end of September. It was followed by Greenhouse Funds with a $45.6 million position. Other investors bullish on the company included Citadel Investment Group, Divisar Capital, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Infinera Corp. (NASDAQ:INFN), around 6.81% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, setting aside 3.96 percent of its 13F equity portfolio to INFN.
As industrywide interest jumped, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Infinera Corp. (NASDAQ:INFN). Point72 Asset Management had $10.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $8.6 million investment in the stock during the quarter. The following funds were also among the new INFN investors: Michael A. Price and Amos Meron’s Empyrean Capital Partners, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Donald Sussman’s Paloma Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Infinera Corp. (NASDAQ:INFN) but similarly valued. These stocks are Sixth Street Specialty Lending Inc (NYSE:TSLX), DiamondRock Hospitality Company (NYSE:DRH), Embraer SA (NYSE:ERJ), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), Mesa Laboratories, Inc. (NASDAQ:MLAB), Perdoceo Education Corporation (NASDAQ:PRDO), and Digital Turbine Inc (NASDAQ:APPS). This group of stocks’ market values resemble INFN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSLX | 10 | 48331 | -3 |
| DRH | 16 | 103371 | 0 |
| ERJ | 14 | 89818 | -2 |
| MDRX | 16 | 117713 | -1 |
| MLAB | 14 | 99793 | 7 |
| PRDO | 19 | 166036 | -4 |
| APPS | 18 | 128145 | -4 |
| Average | 15.3 | 107601 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.3 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $272 million in INFN’s case. Perdoceo Education Corporation (NASDAQ:PRDO) is the most popular stock in this table. On the other hand Sixth Street Specialty Lending Inc (NYSE:TSLX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Infinera Corp. (NASDAQ:INFN) is more popular among hedge funds. Our overall hedge fund sentiment score for INFN is 80.3. 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately INFN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on INFN were disappointed as the stock returned 4.1% during the third 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.
