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Is STMicroelectronics N.V. (STM) A Good Stock To Buy?

We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of STMicroelectronics N.V. (NYSE:STM) based on that data.

Is STMicroelectronics N.V. (NYSE:STM) a healthy stock for your portfolio? Hedge funds are taking a bearish view. The number of long hedge fund bets decreased by 7 recently. Our calculations also showed that STM 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’ 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 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 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.

John Overdeck of Two Sigma

Let’s take a look at the recent hedge fund action regarding STMicroelectronics N.V. (NYSE:STM).

How have hedgies been trading STMicroelectronics N.V. (NYSE:STM)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -39% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in STM heading into this year. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

STM_dec2018

More specifically, Arrowstreet Capital was the largest shareholder of STMicroelectronics N.V. (NYSE:STM), with a stake worth $68.7 million reported as of the end of September. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $14.6 million. Sensato Capital Management, Citadel Investment Group, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Since STMicroelectronics N.V. (NYSE:STM) has faced declining sentiment from the smart money, it’s easy to see that there is a sect of funds who were dropping their full holdings last quarter. Interestingly, Zach Schreiber’s Point State Capital dumped the largest stake of all the hedgies followed by Insider Monkey, totaling close to $73.5 million in stock. Bruce Garelick’s fund, Garelick Capital Partners, also said goodbye to its stock, about $18.5 million worth. These moves are important to note, as total hedge fund interest dropped by 7 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to STMicroelectronics N.V. (NYSE:STM). We will take a look at Markel Corporation (NYSE:MKL), Realty Income Corporation (NYSE:O), Huntington Bancshares Incorporated (NASDAQ:HBAN), and National Oilwell Varco, Inc. (NYSE:NOV). This group of stocks’ market caps resemble STM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MKL 20 1151533 4
O 16 178027 1
HBAN 26 261222 0
NOV 22 639635 8
Average 21 557604 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $558 million. That figure was $118 million in STM’s case. Huntington Bancshares Incorporated (NASDAQ:HBAN) is the most popular stock in this table. On the other hand Realty Income Corporation (NYSE:O) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks STMicroelectronics N.V. (NYSE:STM) is even less popular than O. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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

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