Was The Smart Money Right About Piling Into ON Semiconductor (ON)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 887 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of ON Semiconductor Corporation (NASDAQ:ON).

Is ON Semiconductor Corporation (NASDAQ:ON) a marvelous investment right now? Hedge funds were becoming more confident. The number of bullish hedge fund positions moved up by 16 lately. ON Semiconductor Corporation (NASDAQ:ON) was in 45 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ON isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 29 hedge funds in our database with ON positions at the end of the third quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Jeff Smith

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to take a look at the key hedge fund action surrounding ON Semiconductor Corporation (NASDAQ:ON).

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

At the end of the fourth quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 55% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ON over the last 22 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is ON A Good Stock To Buy?

The largest stake in ON Semiconductor Corporation (NASDAQ:ON) was held by Starboard Value LP, which reported holding $295.8 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $240.8 million position. Other investors bullish on the company included Jericho Capital Asset Management, Paradice Investment Management, and Newbrook Capital Advisors. In terms of the portfolio weights assigned to each position Starboard Value LP allocated the biggest weight to ON Semiconductor Corporation (NASDAQ:ON), around 7.52% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, dishing out 5.97 percent of its 13F equity portfolio to ON.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Starboard Value LP, managed by Jeffrey Smith, assembled the biggest position in ON Semiconductor Corporation (NASDAQ:ON). Starboard Value LP had $295.8 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also initiated a $190.1 million position during the quarter. The following funds were also among the new ON investors: Robert Boucai’s Newbrook Capital Advisors, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Benjamin Pass’s TOMS Capital.

Let’s now review hedge fund activity in other stocks similar to ON Semiconductor Corporation (NASDAQ:ON). These stocks are Sarepta Therapeutics Inc (NASDAQ:SRPT), Cable One Inc (NYSE:CABO), Penn National Gaming, Inc (NASDAQ:PENN), Omnicom Group Inc. (NYSE:OMC), Ally Financial Inc (NYSE:ALLY), C3.ai, Inc. (NYSE:AI), and WPP Plc (NASDAQ:WPP). All of these stocks’ market caps resemble ON’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SRPT 37 978493 2
CABO 17 827605 -6
PENN 41 1324598 -4
OMC 34 546941 0
ALLY 57 2593837 4
AI 37 483532 37
WPP 6 37552 -1
Average 32.7 970365 4.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $970 million. That figure was $1377 million in ON’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 6 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. Our overall hedge fund sentiment score for ON is 78.2. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on ON as the stock returned 19.2% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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