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Hedge Funds Have Never Been More Bullish On Harmonic Inc (HLIT)

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and recouped their losses by the end of the first quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Harmonic Inc (NASDAQ:HLIT).

Is Harmonic Inc (NASDAQ:HLIT) going to take off soon? The smart money is in an optimistic mood. The number of long hedge fund positions rose by 1 lately. Our calculations also showed that HLIT isn’t among the 30 most popular stocks among hedge funds.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Jeremy Mindich - Scopia Capital

Let’s take a peek at the recent hedge fund action surrounding Harmonic Inc (NASDAQ:HLIT).

Hedge fund activity in Harmonic Inc (NASDAQ:HLIT)

At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HLIT over the last 15 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

HLIT_june2019

Among these funds, Raging Capital Management held the most valuable stake in Harmonic Inc (NASDAQ:HLIT), which was worth $31.6 million at the end of the first quarter. On the second spot was Divisar Capital which amassed $16.1 million worth of shares. Moreover, Scopia Capital, Arrowstreet Capital, and Renaissance Technologies were also bullish on Harmonic Inc (NASDAQ:HLIT), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Scopia Capital, managed by Matt Sirovich and Jeremy Mindich, initiated the most valuable position in Harmonic Inc (NASDAQ:HLIT). Scopia Capital had $15.6 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also initiated a $0.1 million position during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Harmonic Inc (NASDAQ:HLIT) but similarly valued. We will take a look at Cincinnati Bell Inc. (NYSE:CBB), Ashford Hospitality Trust, Inc. (NYSE:AHT), Whitestone REIT (NYSE:WSR), and Arvinas, Inc. (NASDAQ:ARVN). This group of stocks’ market caps match HLIT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBB 12 37969 0
AHT 9 39576 -6
WSR 5 16825 -1
ARVN 14 104327 0
Average 10 49674 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $78 million in HLIT’s case. Arvinas, Inc. (NASDAQ:ARVN) is the most popular stock in this table. On the other hand Whitestone REIT (NYSE:WSR) is the least popular one with only 5 bullish hedge fund positions. Harmonic Inc (NASDAQ:HLIT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on HLIT, though not to the same extent, as the stock returned 6.1% during the same time frame and outperformed the market as well.

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

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