Hedge Funds Are Crazy About InterDigital, Inc. (IDCC)

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at InterDigital, Inc. (NASDAQ:IDCC) from the perspective of those elite funds.

Is InterDigital, Inc. (NASDAQ:IDCC) undervalued? Money managers are becoming hopeful. The number of long hedge fund positions increased by 3 recently. Our calculations also showed that IDCC isn’t among the 30 most popular stocks among hedge funds. IDCC was in 18 hedge funds’ portfolios at the end of the third quarter of 2018. There were 15 hedge funds in our database with IDCC positions at the end of the previous quarter.

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 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.

John Overdeck of Two Sigma

Let’s take a look at the new hedge fund action encompassing InterDigital, Inc. (NASDAQ:IDCC).

Hedge fund activity in InterDigital, Inc. (NASDAQ:IDCC)

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the second quarter of 2018. On the other hand, there were a total of 19 hedge funds with a bullish position in IDCC at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, D E Shaw held the most valuable stake in InterDigital, Inc. (NASDAQ:IDCC), which was worth $48.9 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $41.1 million worth of shares. Moreover, Renaissance Technologies, AQR Capital Management, and Two Sigma Advisors were also bullish on InterDigital, Inc. (NASDAQ:IDCC), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, specific money managers have been driving this bullishness. Sensato Capital Management, managed by Ernest Chow and Jonathan Howe, created the biggest position in InterDigital, Inc. (NASDAQ:IDCC). Sensato Capital Management had $2.3 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $0.9 million investment in the stock during the quarter. The following funds were also among the new IDCC investors: Benjamin A. Smith’s Laurion Capital Management and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s now review hedge fund activity in other stocks similar to InterDigital, Inc. (NASDAQ:IDCC). These stocks are Mercury General Corporation (NYSE:MCY), Outfront Media Inc (NYSE:OUT), The Michaels Companies, Inc. (NASDAQ:MIK), and Baozun Inc (NASDAQ:BZUN). This group of stocks’ market valuations match IDCC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCY 18 140557 9
OUT 13 136660 -3
MIK 26 212111 -2
BZUN 17 123960 -3
Average 18.5 153322 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $175 million in IDCC’s case. The Michaels Companies, Inc. (NASDAQ:MIK) is the most popular stock in this table. On the other hand Outfront Media Inc (NYSE:OUT) is the least popular one with only 13 bullish hedge fund positions. InterDigital, Inc. (NASDAQ:IDCC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MIK might be a better candidate to consider a long position.

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