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Is ON Semiconductor Corporation (ON) A Good Stock To Buy?

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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of ON Semiconductor Corporation (NASDAQ:ON).

ON Semiconductor Corporation (NASDAQ:ON) investors should be aware of a decrease in support from the world’s most elite money managers of late. Our calculations also showed that ON isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

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, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the key hedge fund action surrounding ON Semiconductor Corporation (NASDAQ:ON).

What does smart money think about ON Semiconductor Corporation (NASDAQ:ON)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in ON 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.

Is ON A Good Stock To Buy?

The largest stake in ON Semiconductor Corporation (NASDAQ:ON) was held by Paradice Investment Management, which reported holding $48.2 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $16.4 million position. Other investors bullish on the company included Fisher Asset Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to ON Semiconductor Corporation (NASDAQ:ON), around 5.35% of its 13F portfolio. Maple Rock Capital is also relatively very bullish on the stock, dishing out 1.6 percent of its 13F equity portfolio to ON.

Judging by the fact that ON Semiconductor Corporation (NASDAQ:ON) has faced falling interest from the smart money, we can see that there were a few funds that slashed their positions entirely last quarter. At the top of the heap, Kevin Cottrell and Chris LaSusa’s KCL Capital dropped the largest position of all the hedgies tracked by Insider Monkey, comprising about $32.9 million in stock. Anthony Bozza’s fund, Lakewood Capital Management, also dropped its stock, about $28.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to ON Semiconductor Corporation (NASDAQ:ON). These stocks are Aegon N.V. (NYSE:AEG), United Microelectronics Corp (NYSE:UMC), The New York Times Company (NYSE:NYT), and The Madison Square Garden Company (NASDAQ:MSG). This group of stocks’ market caps are closest to ON’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AEG 4 16681 -2
UMC 15 98878 1
NYT 33 1414913 -2
MSG 41 1449012 -2
Average 23.25 744871 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $745 million. That figure was $153 million in ON’s case. The Madison Square Garden Company (NASDAQ:MSG) is the most popular stock in this table. On the other hand Aegon N.V. (NYSE:AEG) is the least popular one with only 4 bullish hedge fund positions. ON Semiconductor Corporation (NASDAQ:ON) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on ON as the stock returned 32.6% in Q2 (through the end of May) 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.