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Were Hedge Funds Right About Souring On ADTRAN, Inc. (ADTN)?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards ADTRAN, Inc. (NASDAQ:ADTN).

ADTRAN, Inc. (NASDAQ:ADTN) was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. ADTN has seen a decrease in hedge fund sentiment lately. There were 15 hedge funds in our database with ADTN holdings at the end of the previous quarter. Our calculations also showed that ADTN isn’t among the 30 most popular stocks among hedge funds (see 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.

If you’d ask most traders, hedge funds are viewed as unimportant, outdated financial vehicles of the past. While there are more than 8000 funds in operation at the moment, Our experts hone in on the bigwigs of this group, approximately 750 funds. These hedge fund managers shepherd the lion’s share of the hedge fund industry’s total capital, and by following their top investments, Insider Monkey has revealed a few investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Chuck Royce

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 review the recent hedge fund action encompassing ADTRAN, Inc. (NASDAQ:ADTN).

Hedge fund activity in ADTRAN, Inc. (NASDAQ:ADTN)

Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in ADTN a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with ADTN Positions

The largest stake in ADTRAN, Inc. (NASDAQ:ADTN) was held by Renaissance Technologies, which reported holding $34.6 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $12.9 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Royce & Associates.

Seeing as ADTRAN, Inc. (NASDAQ:ADTN) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few money managers that elected to cut their entire stakes last quarter. Intriguingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital sold off the biggest investment of all the hedgies watched by Insider Monkey, comprising an estimated $1.1 million in stock. Noam Gottesman’s fund, GLG Partners, also dropped its stock, about $0.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ADTRAN, Inc. (NASDAQ:ADTN) but similarly valued. These stocks are Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), Nova Measuring Instruments Ltd. (NASDAQ:NVMI), Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), and Preferred Bank (NASDAQ:PFBC). All of these stocks’ market caps match ADTN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLDD 22 100002 4
NVMI 9 141351 -2
VNDA 18 226175 -1
PFBC 12 39406 1
Average 15.25 126734 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $85 million in ADTN’s case. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) is the most popular stock in this table. On the other hand Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is the least popular one with only 9 bullish hedge fund positions. ADTRAN, Inc. (NASDAQ:ADTN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 ADTN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ADTN investors were disappointed as the stock returned -25% 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 in 2019.

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

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