Should I Buy Sequans Communications SA (SQNS)?

In this article we will take a look at whether hedge funds think Sequans Communications SA (NYSE:SQNS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Sequans Communications SA (NYSE:SQNS) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that SQNS 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). 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 Altus Midstream Company (NASDAQ:ALTM), Professional Holding Corp. (NASDAQ:PFHD), and Eagle Bulk Shipping Inc. (NASDAQ:EGLE) to gather more data points.

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most stock holders, hedge funds are perceived as underperforming, outdated investment tools of yesteryear. While there are over 8000 funds trading today, Our experts choose to focus on the upper echelon of this group, around 850 funds. These money managers command bulk of the hedge fund industry’s total asset base, and by paying attention to their highest performing picks, Insider Monkey has determined various investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .


Israel Englander of Millennium 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 let’s take a gander at the new hedge fund action encompassing Sequans Communications SA (NYSE:SQNS).

What have hedge funds been doing with Sequans Communications SA (NYSE:SQNS)?

At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in SQNS a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Sequans Communications SA (NYSE:SQNS) was held by Divisar Capital, which reported holding $12.4 million worth of stock at the end of September. It was followed by Nokomis Capital with a $5.9 million position. Other investors bullish on the company included Yiheng Capital, Millennium Management, and Symmetry Peak Management. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Sequans Communications SA (NYSE:SQNS), around 4.11% of its 13F portfolio. Nokomis Capital is also relatively very bullish on the stock, setting aside 2.72 percent of its 13F equity portfolio to SQNS.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Pentwater Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Symmetry Peak Management).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sequans Communications SA (NYSE:SQNS) but similarly valued. We will take a look at Altus Midstream Company (NASDAQ:ALTM), Professional Holding Corp. (NASDAQ:PFHD), Eagle Bulk Shipping Inc. (NASDAQ:EGLE), Unity Biotechnology, Inc. (NASDAQ:UBX), Moneygram International Inc (NASDAQ:MGI), Tilly’s Inc (NYSE:TLYS), and OptiNose, Inc. (NASDAQ:OPTN). This group of stocks’ market values are similar to SQNS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALTM 2 1021 -4
PFHD 3 7982 -1
EGLE 3 71453 -4
UBX 5 1840 -2
MGI 9 16462 1
TLYS 14 26711 -1
OPTN 11 22447 2
Average 6.7 21131 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.7 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $22 million in SQNS’s case. Tilly’s Inc (NYSE:TLYS) is the most popular stock in this table. On the other hand Altus Midstream Company (NASDAQ:ALTM) is the least popular one with only 2 bullish hedge fund positions. Sequans Communications SA (NYSE:SQNS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SQNS is 38.9. 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 negative signal and 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 November 27th and surpassed the market again by 16.1 percentage points. Unfortunately SQNS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SQNS investors were disappointed as the stock returned -24.6% since the end of September (through 11/27) 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 most of these stocks already outperformed the market in 2020.

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