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Were Hedge Funds Right About Dumping Altice USA, Inc. (ATUS)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Altice USA, Inc. (NYSE:ATUS) and determine whether hedge funds skillfully traded this stock.

Altice USA, Inc. (NYSE:ATUS) was in 47 hedge funds’ portfolios at the end of the first quarter of 2020. ATUS shareholders have witnessed a decrease in support from the world’s most elite money managers lately. There were 54 hedge funds in our database with ATUS positions at the end of the previous quarter. Our calculations also showed that ATUS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

In the financial world there are several indicators investors have at their disposal to analyze their holdings. A couple of the most innovative indicators are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outpace their index-focused peers by a solid amount (see the details here).

John Petry Sessa Capital

John Petry of Sessa Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the latest hedge fund action encompassing Altice USA, Inc. (NYSE:ATUS).

Hedge fund activity in Altice USA, Inc. (NYSE:ATUS)

At Q1’s end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 52 hedge funds held shares or bullish call options in ATUS a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is ATUS A Good Stock To Buy?

Among these funds, Soroban Capital Partners held the most valuable stake in Altice USA, Inc. (NYSE:ATUS), which was worth $579.5 million at the end of the third quarter. On the second spot was Zimmer Partners which amassed $219.3 million worth of shares. Palestra Capital Management, Pelham Capital, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to Altice USA, Inc. (NYSE:ATUS), around 27.71% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, designating 22.95 percent of its 13F equity portfolio to ATUS.

Due to the fact that Altice USA, Inc. (NYSE:ATUS) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few fund managers that elected to cut their entire stakes by the end of the first quarter. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management dropped the biggest stake of all the hedgies followed by Insider Monkey, valued at about $260.4 million in stock, and John Petry’s Sessa Capital was right behind this move, as the fund dumped about $46.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 7 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Altice USA, Inc. (NYSE:ATUS) but similarly valued. These stocks are Cardinal Health, Inc. (NYSE:CAH), Campbell Soup Company (NYSE:CPB), Trip.com Group Limited (NASDAQ:TCOM), and Grifols SA (NASDAQ:GRFS). This group of stocks’ market caps resemble ATUS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAH 44 792889 10
CPB 40 378469 11
TCOM 31 966859 0
GRFS 23 700219 2
Average 34.5 709609 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $710 million. That figure was $2396 million in ATUS’s case. Cardinal Health, Inc. (NYSE:CAH) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Altice USA, Inc. (NYSE:ATUS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately ATUS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ATUS were disappointed as the stock returned 1.1% during the second 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 10 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.