Is Uniti Group Inc. (UNIT) A Good Stock To Buy?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Uniti Group Inc. (NASDAQ:UNIT)? The smart money sentiment can provide an answer to this question.

Is Uniti Group Inc. (UNIT) a good stock to buy now? Investors who are in the know were betting on the stock. The number of long hedge fund bets increased by 5 lately. Uniti Group Inc. (NASDAQ:UNIT) was in 22 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. Our calculations also showed that UNIT 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). There were 17 hedge funds in our database with UNIT holdings at the end of June.

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.


Paul Singer of Elliott Management

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. Keeping this in mind we’re going to take a gander at the new hedge fund action surrounding Uniti Group Inc. (NASDAQ:UNIT).

Do Hedge Funds Think UNIT Is A Good Stock To Buy Now?

At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UNIT over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is UNIT A Good Stock To Buy?

Among these funds, Elliott Investment Management held the most valuable stake in Uniti Group Inc. (NASDAQ:UNIT), which was worth $215.7 million at the end of the third quarter. On the second spot was Oaktree Capital Management which amassed $47.1 million worth of shares. HBK Investments, Two Sigma Advisors, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Scion Asset Management allocated the biggest weight to Uniti Group Inc. (NASDAQ:UNIT), around 3.19% of its 13F portfolio. Elliott Investment Management is also relatively very bullish on the stock, setting aside 2.26 percent of its 13F equity portfolio to UNIT.

Consequently, key hedge funds have been driving this bullishness. Elliott Investment Management, managed by Paul Singer, initiated the most outsized position in Uniti Group Inc. (NASDAQ:UNIT). Elliott Investment Management had $215.7 million invested in the company at the end of the quarter. Howard Marks’s Oaktree Capital Management also initiated a $47.1 million position during the quarter. The other funds with brand new UNIT positions are David Costen Haley’s HBK Investments, Austin Wiggins Hopper’s AWH Capital, and Kenneth Tropin’s Graham Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Uniti Group Inc. (NASDAQ:UNIT). We will take a look at Itron, Inc. (NASDAQ:ITRI), Sensient Technologies Corporation (NYSE:SXT), ABM Industries, Inc. (NYSE:ABM), CarGurus, Inc. (NASDAQ:CARG), Stepan Company (NYSE:SCL), Echostar Corporation (NASDAQ:SATS), and Brookfield Business Partners L.P. (NYSE:BBU). This group of stocks’ market values match UNIT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITRI 15 276452 2
SXT 22 219122 -1
ABM 18 48485 -3
CARG 32 328264 1
SCL 12 46672 -3
SATS 28 346080 -1
BBU 4 4337 1
Average 18.7 181345 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $352 million in UNIT’s case. CarGurus, Inc. (NASDAQ:CARG) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 4 bullish hedge fund positions. Uniti Group Inc. (NASDAQ:UNIT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UNIT is 65.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market again by 15.8 percentage points. Unfortunately UNIT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNIT were disappointed as the stock returned 5.9% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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