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Should You Sell Zhone Technologies Inc (ZHNE)?

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 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 here because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Algert Coldiron Investors).

Let’s go over hedge fund activity in other stocks similar to Zhone Technologies Inc (NASDAQ:ZHNE). These stocks are Fuel Tech Inc. (NASDAQ:FTEK), Stanley Furniture Co. (NASDAQ:STLY), StemCells Inc (NASDAQ:STEM), and Erickson Inc (NASDAQ:EAC). All of these stocks’ market caps are similar to Zhone Technologies Inc (NASDAQ:ZHNE)’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTEK 4 1782 0
STLY 4 12112 0
STEM 5 1104 1
EAC 5 10007 1

As you can see, these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $0.47 million in Zhone Technologies Inc (NASDAQ:ZHNE)’s case. StemCells Inc (NASDAQ:STEM) is the most popular stock in this table. On the other hand, Fuel Tech Inc. (NASDAQ:FTEK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Zhone Technologies Inc (NASDAQ:ZHNE) is even less popular than Fuel Tech Inc. (NASDAQ:FTEK). 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.

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