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Is Harmonic Inc (HLIT) Going to Burn These Hedge Funds?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Harmonic Inc (NASDAQ:HLIT).

Harmonic Inc (NASDAQ:HLIT) has seen a decrease in hedge fund interest lately. HLIT was in 12 hedge funds’ portfolios at the end of the third quarter of 2018. There were 14 hedge funds in our database with HLIT holdings at the end of the previous quarter. 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’ 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.

D. E. Shaw

We’re going to take a gander at the fresh hedge fund action regarding Harmonic Inc (NASDAQ:HLIT).

What have hedge funds been doing with Harmonic Inc (NASDAQ:HLIT)?

Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in HLIT heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds With HLIT Positions

More specifically, Raging Capital Management was the largest shareholder of Harmonic Inc (NASDAQ:HLIT), with a stake worth $35.2 million reported as of the end of September. Trailing Raging Capital Management was Royce & Associates, which amassed a stake valued at $9.9 million. Millennium Management, D E Shaw, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Since Harmonic Inc (NASDAQ:HLIT) has faced bearish sentiment from the smart money, it’s safe to say that there were a few hedge funds that slashed their positions entirely by the end of the third quarter. Intriguingly, Ken Griffin’s Citadel Investment Group sold off the largest investment of the 700 funds tracked by Insider Monkey, comprising about $0.5 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund sold off about $0.2 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Harmonic Inc (NASDAQ:HLIT). These stocks are Quanterix Corporation (NASDAQ:QTRX), IntriCon Corporation (NASDAQ:IIN), Intrepid Potash, Inc. (NYSE:IPI), and Hingham Institution for Savings (NASDAQ:HIFS). All of these stocks’ market caps are closest to HLIT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QTRX 7 33192 1
IIN 18 76645 8
IPI 14 30661 0
HIFS 1 5012 0
Average 10 36378 2.25

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 $36 million. That figure was $58 million in HLIT’s case. IntriCon Corporation (NASDAQ:IIN) is the most popular stock in this table. On the other hand Hingham Institution for Savings (NASDAQ:HIFS) is the least popular one with only 1 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IIN might be a better candidate to consider a long position.

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

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