Is ADS Stock A Buy or Sell?

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. Insider Monkey finished processing 887 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2020. What do these smart investors think about Alliance Data Systems Corporation (NYSE:ADS)?

Is ADS stock a buy? Alliance Data Systems Corporation (NYSE:ADS) investors should pay attention to a decrease in hedge fund interest of late. Alliance Data Systems Corporation (NYSE:ADS) was in 32 hedge funds’ portfolios at the end of December. The all time high for this statistic is 45. Our calculations also showed that ADS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Keeping this in mind we’re going to analyze the latest hedge fund action regarding Alliance Data Systems Corporation (NYSE:ADS).

Do Hedge Funds Think ADS Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 45 hedge funds with a bullish position in ADS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Alliance Data Systems Corporation (NYSE:ADS) was held by Southpoint Capital Advisors, which reported holding $148.2 million worth of stock at the end of December. It was followed by Lyrical Asset Management with a $137.4 million position. Other investors bullish on the company included Redwood Capital Management, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Arctis Global allocated the biggest weight to Alliance Data Systems Corporation (NYSE:ADS), around 11.13% of its 13F portfolio. Redwood Capital Management is also relatively very bullish on the stock, earmarking 8.17 percent of its 13F equity portfolio to ADS.

Judging by the fact that Alliance Data Systems Corporation (NYSE:ADS) has witnessed falling interest from the smart money, logic holds that there were a few money managers who were dropping their positions entirely last quarter. Intriguingly, Gregg Moskowitz’s Interval Partners cut the largest investment of the 750 funds monitored by Insider Monkey, worth about $3.6 million in stock. David Harding’s fund, Winton Capital Management, also sold off its stock, about $2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Alliance Data Systems Corporation (NYSE:ADS) but similarly valued. These stocks are Antero Midstream Corp (NYSE:AM), Progyny, Inc. (NASDAQ:PGNY), Schneider National, Inc. (NYSE:SNDR), National Vision Holdings, Inc. (NASDAQ:EYE), Diodes Incorporated (NASDAQ:DIOD), Parsons Corporation (NYSE:PSN), and Coherent, Inc. (NASDAQ:COHR). This group of stocks’ market values resemble ADS’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $846 million in ADS’s case. Progyny, Inc. (NASDAQ:PGNY) is the most popular stock in this table. On the other hand Diodes Incorporated (NASDAQ:DIOD) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Alliance Data Systems Corporation (NYSE:ADS) is more popular among hedge funds. Our overall hedge fund sentiment score for ADS is 72.3. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.2% in 2021 through April 12th but still managed to beat the market by 1.5 percentage points. Hedge funds were also right about betting on ADS as the stock returned 51.1% since the end of December (through 4/12) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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