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 see whether Viavi Solutions Inc (NASDAQ:VIAV) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Viavi Solutions Inc (NASDAQ:VIAV) a first-rate stock to buy now? Money managers are becoming more confident. The number of long hedge fund bets went up by 2 recently. Our calculations also showed that VIAV 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). VIAV was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 35 hedge funds in our database with VIAV holdings at the end of the previous quarter.
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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 we’re going to view the fresh hedge fund action regarding Viavi Solutions Inc (NASDAQ:VIAV).
How have hedgies been trading Viavi Solutions Inc (NASDAQ:VIAV)?
At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in VIAV a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Viavi Solutions Inc (NASDAQ:VIAV) was held by Renaissance Technologies, which reported holding $108.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $100.4 million position. Other investors bullish on the company included Columbus Circle Investors, Arrowstreet Capital, and Toronado Partners. In terms of the portfolio weights assigned to each position Toronado Partners allocated the biggest weight to Viavi Solutions Inc (NASDAQ:VIAV), around 7.92% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, setting aside 3.22 percent of its 13F equity portfolio to VIAV.
As industrywide interest jumped, key money managers have jumped into Viavi Solutions Inc (NASDAQ:VIAV) headfirst. Discovery Capital Management, managed by Rob Citrone, established the most outsized position in Viavi Solutions Inc (NASDAQ:VIAV). Discovery Capital Management had $4.5 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also initiated a $3.9 million position during the quarter. The other funds with brand new VIAV positions are Mark Broach’s Manatuck Hill Partners, Nehal Chopra’s Ratan Capital Group, and Joel Greenblatt’s Gotham Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Viavi Solutions Inc (NASDAQ:VIAV). We will take a look at Plains GP Holdings LP (NYSE:PAGP), Insperity Inc (NYSE:NSP), FirstCash, Inc. (NASDAQ:FCFS), and Silgan Holdings Inc. (NASDAQ:SLGN). This group of stocks’ market caps resemble VIAV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PAGP | 26 | 366780 | 6 |
| NSP | 21 | 348461 | -7 |
| FCFS | 16 | 172761 | -3 |
| SLGN | 17 | 210117 | -1 |
| Average | 20 | 274530 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $421 million in VIAV’s case. Plains GP Holdings LP (NYSE:PAGP) is the most popular stock in this table. On the other hand FirstCash, Inc. (NASDAQ:FCFS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Viavi Solutions Inc (NASDAQ:VIAV) 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately VIAV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VIAV were disappointed as the stock returned -25.1% during the first two and a half months of 2020 (through March 25th) 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.
