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Were Hedge Funds Right About AT&T Inc. (T)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not AT&T Inc. (NYSE:T) makes for a good investment right now.

AT&T Inc. (NYSE:T) has seen a decrease in enthusiasm from smart money of late. Our calculations also showed that T isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

To the average investor there are many formulas market participants use to assess their holdings. A pair of the less utilized formulas are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can outpace the market by a significant amount (see the details here).

Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the key hedge fund action regarding AT&T Inc. (NYSE:T).

Hedge fund activity in AT&T Inc. (NYSE:T)

Heading into the first quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from one quarter earlier. By comparison, 56 hedge funds held shares or bullish call options in T a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Paul Singer’s Elliott Management has the biggest call position in AT&T Inc. (NYSE:T), worth close to $791.4 million, comprising 6.7% of its total 13F portfolio. Coming in second is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $324.4 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Ken Griffin’s Citadel Investment Group, Paul Singer’s Elliott Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Mountain Road Advisors allocated the biggest weight to AT&T Inc. (NYSE:T), around 6.72% of its 13F portfolio. Elliott Management is also relatively very bullish on the stock, designating 6.69 percent of its 13F equity portfolio to T.

Since AT&T Inc. (NYSE:T) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedge funds who sold off their full holdings heading into Q4. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $88.4 million in call options, and Mike Masters’s Masters Capital Management was right behind this move, as the fund sold off about $71 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AT&T Inc. (NYSE:T) but similarly valued. These stocks are UnitedHealth Group Inc. (NYSE:UNH), The Walt Disney Company (NYSE:DIS), Intel Corporation (NASDAQ:INTC), and Verizon Communications Inc. (NYSE:VZ). All of these stocks’ market caps are closest to T’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNH 91 7896286 3
DIS 118 4968497 3
INTC 58 6147008 -6
VZ 65 1885232 1
Average 83 5224256 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 83 hedge funds with bullish positions and the average amount invested in these stocks was $5224 million. That figure was $1407 million in T’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Intel Corporation (NASDAQ:INTC) is the least popular one with only 58 bullish hedge fund positions. Compared to these stocks AT&T Inc. (NYSE:T) is even less popular than INTC. Hedge funds dodged a bullet by taking a bearish stance towards T. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately T wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); T investors were disappointed as the stock returned -21.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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