Alliance Data Systems Corporation (ADS)Hedge Funds Are Snapping Up

The third-quarter stock market correction has turned out to resemble the situation observed during the Asian financial crisis of 1997. The two relatively short-lived corrections occurred at a time with stable interest rates, falling commodity markets, with strong-performing technology and healthcare sectors, and struggling energy sector. Similarly, the two corrections followed long periods without a correction, which had to come sooner or later and it did. Even so, several prominent hedge fund investors publicly asserted their bearish view on the current state of the U.S. equity markets, suggesting that they significantly cut their exposure to equities during the latest quarter. Having said that, it would be worthwhile to take a look at the hedge fund sentiment on Alliance Data Systems Corporation (NYSE:ADS) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Alliance Data Systems Corporation (NYSE:ADS) worth your attention right now? Hedge funds are buying. The number of long hedge fund positions rose by 5 recently. ADS was in 27 hedge funds’ portfolios at the end of the third quarter of 2015. There were 22 hedge funds in our database with ADS holdings at the end of the previous quarter. At the end of this article we will also compare ADS to other stocks, including Northern Trust Corporation (NASDAQ:NTRS), Liberty Interactive Corp (NASDAQ:QVCA), and International Paper Company (NYSE:IP) to get a better sense of its popularity.

In today’s marketplace there are a large number of indicators that market participants can use to assess publicly traded companies. A couple of the most useful indicators are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the best investment managers can outclass the broader indices by a solid amount (see the details here).

Now, we’re going to review the latest action encompassing Alliance Data Systems Corporation (NYSE:ADS).

How are hedge funds trading Alliance Data Systems Corporation (NYSE:ADS)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, up by 23% from the second quarter. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the number one position in Alliance Data Systems Corporation (NYSE:ADS). The fund has a $72.2 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Phill Gross and Robert Atchinson of Adage Capital Management, with a $51.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions include Seymour Sy Kaufman and Michael Stark’s Crosslink Capital, Gabriel Plotkin’s Melvin Capital Management and Neil Chriss’s Hutchin Hill Capital.

Consequently, some big names were breaking ground themselves. Melvin Capital Management, managed by Gabriel Plotkin, established the biggest position in Alliance Data Systems Corporation (NYSE:ADS). Melvin Capital Management had $25.9 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $20.6 million investment in the stock during the quarter. The other funds with brand new ADS positions are D. E. Shaw’s D E Shaw, Steve Cohen’s Point72 Asset Management, and Jim Simons’s Renaissance Technologies.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Alliance Data Systems Corporation (NYSE:ADS) but similarly valued. We will take a look at Northern Trust Corporation (NASDAQ:NTRS), Liberty Interactive Corp (NASDAQ:QVCA), International Paper Company (NYSE:IP), and Roper Industries, Inc. (NYSE:ROP). This group of stocks’ market values resemble ADS’s market value.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1.47 billion. That figure was $340 million in ADS’s case. Liberty Interactive Corp (NASDAQ:QVCA) is the most popular stock in this table, while Northern Trust Corporation (NASDAQ:NTRS) is the least popular one with only 22 bullish hedge fund positions. Alliance Data Systems Corporation (NYSE:ADS) 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. In this regard QVCA might be a better candidate to consider a long position.