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

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of AT&T Inc. (NYSE:T) based on that data and determine whether they were really smart about the stock.

AT&T Inc. (NYSE:T) has experienced an increase in enthusiasm from smart money recently. T was in 57 hedge funds’ portfolios at the end of March. There were 50 hedge funds in our database with T positions at the end of the previous quarter. Our calculations also showed that T 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 today’s marketplace there are many signals stock market investors can use to value publicly traded companies. A couple of the best signals are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can outclass the broader indices by a solid margin (see the details here).

Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

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 we’re going to check out the new hedge fund action encompassing AT&T Inc. (NYSE:T).

What does smart money think about AT&T Inc. (NYSE:T)?

At the end of the first quarter, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 41 hedge funds with a bullish position in T a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Elliott Management held the most valuable stake in AT&T Inc. (NYSE:T), which was worth $306.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $298.6 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and D E Shaw 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 Mountain Road Advisors allocated the biggest weight to AT&T Inc. (NYSE:T), around 5.93% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, earmarking 5.07 percent of its 13F equity portfolio to T.

As one would reasonably expect, specific money managers were breaking ground themselves. Renaissance Technologies, assembled the most valuable position in AT&T Inc. (NYSE:T). Renaissance Technologies had $298.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $54 million position during the quarter. The other funds with new positions in the stock are Martin Taylor’s Crake Asset Management, David Costen Haley’s HBK Investments, and Donald Sussman’s Paloma Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as AT&T Inc. (NYSE:T) but similarly valued. We will take a look at The Home Depot, Inc. (NYSE:HD), Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), and Novartis AG (NYSE:NVS). All of these stocks’ market caps are similar to T’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HD 87 3585582 -4
MRK 78 5025553 1
KO 55 19901708 4
NVS 30 2034578 0
Average 62.5 7636855 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 62.5 hedge funds with bullish positions and the average amount invested in these stocks was $7637 million. That figure was $1646 million in T’s case. The Home Depot, Inc. (NYSE:HD) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 bullish hedge fund positions. AT&T Inc. (NYSE:T) 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 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 surpassed the market by 15.5 percentage points. Unfortunately T wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); T investors were disappointed as the stock returned 5.5% 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.