We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether ADT Inc. (NYSE:ADT) 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.
ADT Inc. (NYSE:ADT) investors should be aware of an increase in activity from the world’s largest hedge funds recently. ADT was in 21 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with ADT positions at the end of the previous quarter. Our calculations also showed that ADT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bill Miller of Miller Value Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the recent hedge fund action regarding ADT Inc. (NYSE:ADT).
What have hedge funds been doing with ADT Inc. (NYSE:ADT)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ADT over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Miller Value Partners was the largest shareholder of ADT Inc. (NYSE:ADT), with a stake worth $124.7 million reported as of the end of September. Trailing Miller Value Partners was Arrowstreet Capital, which amassed a stake valued at $24.8 million. Greenhouse Funds, GLG Partners, and Renaissance Technologies 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 Miller Value Partners allocated the biggest weight to ADT Inc. (NYSE:ADT), around 4.42% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, designating 3.53 percent of its 13F equity portfolio to ADT.
As industrywide interest jumped, key money managers have jumped into ADT Inc. (NYSE:ADT) headfirst. Renaissance Technologies, created the most valuable position in ADT Inc. (NYSE:ADT). Renaissance Technologies had $3.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $1.9 million position during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management, Matthew Tewksbury’s Stevens Capital Management, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ADT Inc. (NYSE:ADT) but similarly valued. These stocks are MDU Resources Group Inc (NYSE:MDU), Zscaler, Inc. (NASDAQ:ZS), Kinross Gold Corporation (NYSE:KGC), and The Scotts Miracle-Gro Company (NYSE:SMG). This group of stocks’ market caps resemble ADT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDU | 30 | 355457 | 7 |
| ZS | 18 | 89966 | -3 |
| KGC | 25 | 448750 | -3 |
| SMG | 31 | 365213 | -3 |
| Average | 26 | 314847 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $315 million. That figure was $194 million in ADT’s case. The Scotts Miracle-Gro Company (NYSE:SMG) is the most popular stock in this table. On the other hand Zscaler, Inc. (NASDAQ:ZS) is the least popular one with only 18 bullish hedge fund positions. ADT Inc. (NYSE:ADT) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ADT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ADT investors were disappointed as the stock returned -43.8% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
