Five Cheap Public Utilities Stocks Hedge Funds Like

Investors looking to earn strong returns on their invested capital with low volatility have surely been disappointed with the low rates of return provided by certificates of deposit and treasury securities. Instead, investors could have a look at the corner of equity markets that comprises utility stocks. This basket of stocks has been an important source of dividend income for income-seeking investors for years. But why would anyone even consider investing in utilities? The primary reason why utility stocks are not usually subject to wild moves in stock prices is that utility companies are allowed to act as sleepy monopolies within their respective operating markets. Moreover, the society may find it extremely difficult to function without running water, electricity, natural gas and telephones, even if people face tumultuous periods of economic hardship. That being said, Insider Monkey will lay out a list of five low-priced public utilities stocks favored by the hedge funds monitored by our team.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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#5. TIM Participacoes SA (ADR) (NYSE:TSU)

– Investors with long positions as of March 31: 14

– Aggregate value of investors’ holdings as of March 31: $304.04 Million

The number of asset managers followed by Insider Monkey with long positions in TIM Participacoes SA (ADR) (NYSE:TSU) remained unchanged during the first quarter of 2016 at 14, while the aggregate value of those positions grew by 24% quarter-over-quarter to $304.04 million. The increase was mainly driven by a 30% gain in the value of TIM Participacoes’ American Depositary Shares, so some managers reduced their exposure to the company during the quarter. The provider of mobile telecommunication services in Brazil has seen its market value gain 16% since the beginning of the year. TIM Participacoes’ gross service revenue in 2015 declined 5.8% year-over-year as a result of major changes in usage patterns, namely a shift from voice to data usage, as well as deteriorating macroeconomic conditions in Latin America’s largest economy. TIM Participacoes boasts an annual dividend yield of 5.29%. Brett Barakett’s Tremblant Capital acquired a new stake of 3.74 million ADSs of TIM Participacoes SA (ADR) (NYSE:TSU) during the March quarter.

#4. Sprint Corp (NYSE:S)

– Investors with long positions as of March 31: 20

– Aggregate value of investors’ holdings as of March 31: $182.01 Million

The hedge fund sentiment towards Sprint Corp (NYSE:S) increased in the first three months of 2016, during which the number of funds from our system with stakes in Sprint jumped to 20 from 17 quarter-over-quarter. Nonetheless, the overall value of those stakes fell by 14% sequentially to $182.01 million, partially due to a 4% decline in the value of Sprint shares. The fourth-largest wireless communications services provider in the U.S. has seen its market value increase by nearly 4% since the start of 2016. In April, Sprint raised $2.2 billion by selling and leasing back $3 billion worth of network gear to specially created entities in an attempt to reduce its heavy debt load. As the mobile-phone carrier has roughly $10 billion in debt due over the next three years, the company engages in rather unusual financial arrangements to raise cash. Rob Citrone’s Discovery Capital Management upped its position in Sprint Corp (NYSE:S) by 20% during the first quarter to 37.79 million shares.

The next page of this article discusses there other low-priced public utilities stocks favored by the hedge funds monitored by Insider Monkey.

#3. ShoreTel Inc. (NASDAQ:SHOR)

– Investors with long positions as of March 31: 21

– Aggregate value of investors’ holdings as of March 31: $140.24 Million

ShoreTel Inc. (NASDAQ:SHOR) lost some charm among the hedge funds monitored by Insider Monkey in the first quarter of 2016, as the number of funds invested in the company fell to 21 from 24 quarter-over-quarter. Similarly, the overall value of those funds’ equity investments in ShoreTel decreased by 18% sequentially to $140.24 million, mainly due to a 16% drop in the share price of ShoreTel stock. The 21 hedge fund vehicles invested in the provider of business communications solutions amassed 28% of its total number of outstanding shares. ShoreTel reported total revenue of $265.69 million for the nine months that ended March 31, slightly up from $265.50 million reported for the same period of the previous year. The telecommunications products specialist anticipates a top line in the range of $88 million-to-$94 million for the current quarter, below analysts’ expectations of $96.2 million. ShoreTel shares are down 28% year-to-date. Peter S. Park’s Park West Asset Management was the owner of 6.49 million shares of ShoreTel Inc. (NASDAQ:SHOR) at the end of March.

#2. Frontier Communications Corp (NASDAQ:FTR)

– Investors with long positions as of March 31: 27

– Aggregate value of investors’ holdings as of March 31: $302.74 Million

The so-called smart money sentiment towards Frontier Communications Corp (NASDAQ:FTR) declined during the first three months of 2016, with the number of money managers from our database with stakes in the company dropping to 27 from 31 quarter-over-quarter. Meanwhile, the dollar value of all those stakes fell by nearly 12% sequentially to $302.74 million even though Frontier shares gained 22% during the first quarter. Almost 5% of the company’s outstanding common stock was hoarded up by the 27 hedge funds followed by Insider Monkey. The U.S. provider of voice, data, and video services currently has a market capitalization of $5.84 billion, after seeing its shares gain 6% since the beginning of the year. Frontier Communications, which focuses on providing services to rural areas, as well as small and medium-sized towns and cities, pays out a quarterly cash dividend of $0.105, which equates to an impressive annual dividend yield of 8.42%. D.E. Shaw & Co. L.P., founded by David E. Shaw, owns 4.28 million shares of Frontier Communications Corp (NASDAQ:FTR) as of March 31.

#1. Vonage Holdings Corp. (NYSE:VG)

– Investors with long positions as of March 31: 30

– Aggregate value of investors’ holdings as of March 31: $94.44 Million

Vonage Holdings Corp. (NYSE:VG) was what could be called a hedge fund darling in the January-March period, as the number of money managers from our system with equity investments in the company spiked to 30 from 23 quarter-on-quarter. However, the overall value of those investments dropped 12% quarter-over-quarter to $94.44 million, as the stock slid 20% during the three-month period. The 30 asset managers invested in Vonage stockpiled 10% of the company’s outstanding shares. Earlier this month, the provider of cloud communications services completed its previously-announced $230 million-acquisition of privately-held Nexmo Inc., a pioneer in the communications platform-as-a-service (CPaaS) segment of the cloud communications market. The acquisition is set to accelerate Vonage’s speed of growth, as well as strengthen its position in the cloud communications market. Shares of Vonage Holdings have lost 17% of their value since the beginning of the year and trade significantly below the IPO price of $17.00 a share. William C. Martin’s Raging Capital Management added a 1.45 million-share position in Vonage Holdings Corp. (NYSE:VG) to its portfolio during the first quarter of the year.

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