Were Hedge Funds Wrong About Analog Devices, Inc. (ADI)?

In this article we will take a look at whether hedge funds think Analog Devices, Inc. (NASDAQ:ADI) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Analog Devices, Inc. (NASDAQ:ADI) was in 49 hedge funds’ portfolios at the end of June. The all time high for this statistics is 51. ADI investors should be aware of an increase in enthusiasm from smart money recently. There were 45 hedge funds in our database with ADI positions at the end of the first quarter. Our calculations also showed that ADI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Blood

David Blood of Generation Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best high dividend stocks to buy to identify solid dividend stocks trading at rock bottom prices. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a glance at the latest hedge fund action encompassing Analog Devices, Inc. (NASDAQ:ADI).

How are hedge funds trading Analog Devices, Inc. (NASDAQ:ADI)?

At Q2’s end, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADI over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Analog Devices, Inc. (NASDAQ:ADI) was held by Cantillon Capital Management, which reported holding $612.1 million worth of stock at the end of September. It was followed by First Pacific Advisors LLC with a $376.5 million position. Other investors bullish on the company included Generation Investment Management, Alkeon Capital Management, and Viking Global. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to Analog Devices, Inc. (NASDAQ:ADI), around 10.62% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, dishing out 7.7 percent of its 13F equity portfolio to ADI.

As one would reasonably expect, key hedge funds have jumped into Analog Devices, Inc. (NASDAQ:ADI) headfirst. Viking Global, managed by Andreas Halvorsen, initiated the biggest position in Analog Devices, Inc. (NASDAQ:ADI). Viking Global had $240.4 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $76.7 million position during the quarter. The other funds with brand new ADI positions are Richard Driehaus’s Driehaus Capital, Dmitry Balyasny’s Balyasny Asset Management, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital.

Let’s now review hedge fund activity in other stocks similar to Analog Devices, Inc. (NASDAQ:ADI). We will take a look at Westpac Banking Corporation (NYSE:WBK), ConocoPhillips (NYSE:COP), Norfolk Southern Corp. (NYSE:NSC), Waste Management, Inc. (NYSE:WM), PNC Financial Services Group Inc. (NYSE:PNC), Aon plc (NYSE:AON), and Atlassian Corporation Plc (NASDAQ:TEAM). This group of stocks’ market caps match ADI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WBK 4 28400 -5
COP 44 912521 -10
NSC 47 867199 -4
WM 39 2844869 -1
PNC 52 1108094 12
AON 57 4755205 10
TEAM 55 2872691 -4
Average 42.6 1912711 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.6 hedge funds with bullish positions and the average amount invested in these stocks was $1913 million. That figure was $2849 million in ADI’s case. Aon plc (NYSE:AON) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 bullish hedge fund positions. Analog Devices, Inc. (NASDAQ:ADI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADI is 80.3. 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. This is a slightly positive signal but 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately ADI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ADI were disappointed as the stock returned 1.8% since the end of June (through 10/23) 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 many of these stocks already outperformed the market so far this year.

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