Is Infinera Corp. (INFN) Poised for a Rebound?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Infinera Corp. (NASDAQ:INFN).

Infinera Corp. (NASDAQ:INFN) was in 17 hedge funds’ portfolios at the end of September. INFN has seen an increase in enthusiasm from smart money recently. There were 15 hedge funds in our database with INFN positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Travelport Worldwide Ltd (NYSE:TVPT), CBL & Associates Properties, Inc. (NYSE:CBL), and Aaron’s, Inc. (NYSE:AAN) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about Infinera Corp. (NASDAQ:INFN)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 13% uptick from one quarter earlier. The graph below displays the number of hedge funds with bullish position in INFN over the last 5 quarters, which shows a substantial drop in ownership during that time. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the largest position in Infinera Corp. (NASDAQ:INFN), worth close to $27.4 million. On Citadel Investment Group’s heels is Renaissance Technologies, led by Jim Simons, holding a $7.1 million position. Some other hedge funds and institutional investors that are bullish encompass Michael A. Price and Amos Meron’s Empyrean Capital Partners, Anand Parekh’s Alyeska Investment Group, and Chuck Royce’s Royce & Associates. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, some big names were breaking ground themselves. Renaissance Technologies assembled the biggest position in Infinera Corp. (NASDAQ:INFN). Empyrean Capital Partners also initiated a $5.8 million position during the quarter. The other funds with new positions in the stock are John Petry’s Sessa Capital and Wojciech Uzdelewicz’s Espalier Global Management.

Let’s also examine hedge fund activity in other stocks similar to Infinera Corp. (NASDAQ:INFN). We will take a look at Travelport Worldwide Ltd (NYSE:TVPT), CBL & Associates Properties, Inc. (NYSE:CBL), Aaron’s, Inc. (NYSE:AAN), and Agios Pharmaceuticals Inc (NASDAQ:AGIO). All of these stocks’ market caps are closest to INFN’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $67 million in INFN’s case. Travelport Worldwide Ltd (NYSE:TVPT) is the most popular stock in this table. On the other hand CBL & Associates Properties, Inc. (NYSE:CBL) is the least popular one with only 11 bullish hedge fund positions. Infinera Corp. (NASDAQ:INFN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TVPT might be a better candidate to consider taking a long position in.

Disclosure: None