Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Skyworks Solutions Inc (NASDAQ:SWKS) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Skyworks Solutions Inc (NASDAQ:SWKS) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2019. SWKS has seen an increase in hedge fund interest of late. There were 26 hedge funds in our database with SWKS positions at the end of the previous quarter. Our calculations also showed that SWKS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 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.
Kerr Neilson of Platinum Asset Management
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. Now let’s go over the recent hedge fund action surrounding Skyworks Solutions Inc (NASDAQ:SWKS).
What does smart money think about Skyworks Solutions Inc (NASDAQ:SWKS)?
Heading into the first quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 65% from the third quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in SWKS a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Skyworks Solutions Inc (NASDAQ:SWKS) was held by AQR Capital Management, which reported holding $375.9 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $302.1 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Maplelane Capital. In terms of the portfolio weights assigned to each position Platinum Asset Management allocated the biggest weight to Skyworks Solutions Inc (NASDAQ:SWKS), around 5.98% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, setting aside 5.11 percent of its 13F equity portfolio to SWKS.
As industrywide interest jumped, specific money managers have been driving this bullishness. Capital Growth Management, managed by Ken Heebner, initiated the most outsized position in Skyworks Solutions Inc (NASDAQ:SWKS). Capital Growth Management had $38.1 million invested in the company at the end of the quarter. John Hurley’s Cavalry Asset Management also initiated a $35.2 million position during the quarter. The other funds with brand new SWKS positions are Dmitry Balyasny’s Balyasny Asset Management, Anand Parekh’s Alyeska Investment Group, and Steve Cohen’s Point72 Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Skyworks Solutions Inc (NASDAQ:SWKS) but similarly valued. We will take a look at CDW Corporation (NASDAQ:CDW), CBRE Group, Inc. (NYSE:CBRE), Hewlett Packard Enterprise Company (NYSE:HPE), and Hess Corporation (NYSE:HES). This group of stocks’ market valuations resemble SWKS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDW | 30 | 1085374 | 0 |
| CBRE | 30 | 1499210 | -1 |
| HPE | 41 | 1048549 | 10 |
| HES | 34 | 536867 | -4 |
| Average | 33.75 | 1042500 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1043 million. That figure was $1178 million in SWKS’s case. Hewlett Packard Enterprise Company (NYSE:HPE) is the most popular stock in this table. On the other hand CDW Corporation (NASDAQ:CDW) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Skyworks Solutions Inc (NASDAQ:SWKS) is more popular among hedge funds. 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 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately SWKS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SWKS were disappointed as the stock returned -43.6% during the first two and a half months of 2020 (through March 16th) 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.
