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Hedge Funds Never Been Less Bullish On Applied Optoelectronics Inc (AAOI)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Applied Optoelectronics Inc (NASDAQ:AAOI).

Applied Optoelectronics Inc (NASDAQ:AAOI) shareholders have witnessed a decrease in enthusiasm from smart money lately. Our calculations also showed that AAOI 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind let’s take a peek at the fresh hedge fund action regarding Applied Optoelectronics Inc (NASDAQ:AAOI).

Hedge fund activity in Applied Optoelectronics Inc (NASDAQ:AAOI)

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AAOI over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Millennium Management was the largest shareholder of Applied Optoelectronics Inc (NASDAQ:AAOI), with a stake worth $4.1 million reported as of the end of September. Trailing Millennium Management was D E Shaw, which amassed a stake valued at $3.8 million. Newtyn Management, Citadel Investment Group, and PDT Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to Applied Optoelectronics Inc (NASDAQ:AAOI), around 0.83% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to AAOI.

Since Applied Optoelectronics Inc (NASDAQ:AAOI) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few hedgies that slashed their entire stakes last quarter. Interestingly, Leung Chi Kit’s Kadensa Capital sold off the largest stake of the 750 funds watched by Insider Monkey, totaling about $3.9 million in stock. Chuck Royce’s fund, Royce & Associates, also sold off its stock, about $2.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 5 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Applied Optoelectronics Inc (NASDAQ:AAOI). We will take a look at SB One Bancorp (NASDAQ:SBBX), Chiasma Inc (NASDAQ:CHMA), Cerecor Inc. (NASDAQ:CERC), and Orrstown Financial Services, Inc. (NASDAQ:ORRF). This group of stocks’ market caps are similar to AAOI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBBX 6 8649 -1
CHMA 12 45011 0
CERC 5 76950 1
ORRF 3 6992 1
Average 6.5 34401 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $12 million in AAOI’s case. Chiasma Inc (NASDAQ:CHMA) is the most popular stock in this table. On the other hand Orrstown Financial Services, Inc. (NASDAQ:ORRF) is the least popular one with only 3 bullish hedge fund positions. Applied Optoelectronics Inc (NASDAQ:AAOI) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on AAOI as the stock returned 34.1% in Q2 (through June 17th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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