While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Iridium Communications Inc. (NASDAQ:IRDM).
Is IRDM a good stock to buy now? Iridium Communications Inc. (NASDAQ:IRDM) was in 15 hedge funds’ portfolios at the end of September. The all time high for this statistic is 20. IRDM investors should pay attention to a decrease in enthusiasm from smart money of late. There were 19 hedge funds in our database with IRDM holdings at the end of June. Our calculations also showed that IRDM 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).
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let’s view the key hedge fund action surrounding Iridium Communications Inc. (NASDAQ:IRDM).
Do Hedge Funds Think IRDM Is A Good Stock To Buy Now?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the second quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in IRDM a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Iridium Communications Inc. (NASDAQ:IRDM) was held by Silver Heights Capital Management, which reported holding $62.8 million worth of stock at the end of September. It was followed by Select Equity Group with a $22.4 million position. Other investors bullish on the company included GAMCO Investors, Renaissance Technologies, and Kerrisdale Capital. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to Iridium Communications Inc. (NASDAQ:IRDM), around 29.37% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, earmarking 0.68 percent of its 13F equity portfolio to IRDM.
Since Iridium Communications Inc. (NASDAQ:IRDM) has witnessed bearish sentiment from hedge fund managers, we can see that there was a specific group of funds that slashed their positions entirely heading into Q4. Intriguingly, Mitch Kuflik and Rob Sobel’s Brahman Capital cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling close to $21.8 million in stock, and Ken Fisher’s Fisher Asset Management was right behind this move, as the fund said goodbye to about $3.1 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Iridium Communications Inc. (NASDAQ:IRDM) but similarly valued. We will take a look at TG Therapeutics Inc (NASDAQ:TGTX), Global Blood Therapeutics Inc (NASDAQ:GBT), Parsons Corporation (NYSE:PSN), Vertex, Inc. (NASDAQ:VERX), Watts Water Technologies Inc (NYSE:WTS), Cloudera, Inc. (NYSE:CLDR), and PS Business Parks Inc (NYSE:PSB). This group of stocks’ market values are closest to IRDM’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $385 million. That figure was $136 million in IRDM’s case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand Vertex, Inc. (NASDAQ:VERX) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Iridium Communications Inc. (NASDAQ:IRDM) is even less popular than VERX. Our overall hedge fund sentiment score for IRDM is 23.5. 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. Hedge funds clearly dropped the ball on IRDM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on IRDM as the stock returned 33.2% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.