Is Analog Devices (ADI) A Good Stock To Buy Now?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Analog Devices, Inc. (NASDAQ:ADI) in this article.

Is Analog Devices (ADI) a good stock to buy now? The smart money was turning bullish. The number of bullish hedge fund positions moved up by 3 in recent months. Analog Devices, Inc. (NASDAQ:ADI) was in 52 hedge funds’ portfolios at the end of September. The all time high for this statistics is 51. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ADI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 49 hedge funds in our database with ADI holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let’s take a look at the key hedge fund action encompassing Analog Devices, Inc. (NASDAQ:ADI).

What does smart money think about Analog Devices, Inc. (NASDAQ:ADI)?

At the end of September, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 46 hedge funds with a bullish position in ADI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Generation Investment Management held the most valuable stake in Analog Devices, Inc. (NASDAQ:ADI), which was worth $682.6 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $576.1 million worth of shares. Soroban Capital Partners, First Pacific Advisors LLC, and Viking Global 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 First Pacific Advisors LLC allocated the biggest weight to Analog Devices, Inc. (NASDAQ:ADI), around 4.86% of its 13F portfolio. Mondrian Capital is also relatively very bullish on the stock, dishing out 4.84 percent of its 13F equity portfolio to ADI.

As aggregate interest increased, key hedge funds have been driving this bullishness. Soroban Capital Partners, managed by Eric W. Mandelblatt and Gaurav Kapadia, assembled the most valuable position in Analog Devices, Inc. (NASDAQ:ADI). Soroban Capital Partners had $381.5 million invested in the company at the end of the quarter. Renaissance Technologies also made a $187.3 million investment in the stock during the quarter. The other funds with brand new ADI positions are Anand Parekh’s Alyeska Investment Group, Leon Shaulov’s Maplelane Capital, and Daniel Sundheim’s D1 Capital Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Analog Devices, Inc. (NASDAQ:ADI) but similarly valued. We will take a look at Lululemon Athletica inc. (NASDAQ:LULU), CNOOC Limited (NYSE:CEO), Koninklijke Philips NV (NYSE:PHG), Veeva Systems Inc (NYSE:VEEV), General Motors Company (NYSE:GM), Monster Beverage Corp (NASDAQ:MNST), and HCA Healthcare Inc (NYSE:HCA). This group of stocks’ market values match ADI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LULU 50 1273396 11
CEO 14 176612 1
PHG 10 56033 4
VEEV 38 733670 3
GM 60 4789000 -9
MNST 50 2369684 15
HCA 71 2443368 0
Average 41.9 1691680 3.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.9 hedge funds with bullish positions and the average amount invested in these stocks was $1692 million. That figure was $3650 million in ADI’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 10 bullish hedge fund positions. Analog Devices, Inc. (NASDAQ:ADI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADI is 72.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on ADI as the stock returned 20.5% since the end of Q3 (through 12/2) 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.