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Should You Avoid ON Semiconductor Corporation (ON)?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is ON Semiconductor Corporation (NASDAQ:ON), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

ON Semiconductor Corporation (NASDAQ:ON) was in 26 hedge funds’ portfolios at the end of June. ON has experienced a decrease in activity from the world’s largest hedge funds recently. There were 39 hedge funds in our database with ON holdings at the end of the previous quarter. Our calculations also showed that ON isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clifton Robbins - Blue Harbour

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the fresh hedge fund action surrounding ON Semiconductor Corporation (NASDAQ:ON).

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

At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in ON a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ON_oct2019

Among these funds, Point72 Asset Management held the most valuable stake in ON Semiconductor Corporation (NASDAQ:ON), which was worth $115.3 million at the end of the second quarter. On the second spot was Blue Harbour Group which amassed $87.5 million worth of shares. Moreover, AQR Capital Management, Simcoe Capital Management, and Rima Senvest Management were also bullish on ON Semiconductor Corporation (NASDAQ:ON), allocating a large percentage of their portfolios to this stock.

Because ON Semiconductor Corporation (NASDAQ:ON) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $73.8 million in stock, and William Harnisch’s Peconic Partners LLC was right behind this move, as the fund said goodbye to about $9.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 13 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ON Semiconductor Corporation (NASDAQ:ON) but similarly valued. These stocks are Formula One Group (NASDAQ:FWONA), Qorvo Inc (NASDAQ:QRVO), IPG Photonics Corporation (NASDAQ:IPGP), and Zions Bancorporation, National Association (NASDAQ:ZION). This group of stocks’ market values are closest to ON’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FWONA 18 322574 -3
QRVO 28 1180673 -6
IPGP 16 142417 3
ZION 35 544360 -9
Average 24.25 547506 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $548 million. That figure was $526 million in ON’s case. Zions Bancorporation, National Association (NASDAQ:ZION) is the most popular stock in this table. On the other hand IPG Photonics Corporation (NASDAQ:IPGP) is the least popular one with only 16 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. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ON wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ON were disappointed as the stock returned -4.9% during the third quarter 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.

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

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