In this article you are going to find out whether hedge funds think ADT Inc. (NYSE:ADT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is ADT stock a buy? Investors who are in the know were taking a pessimistic view. The number of long hedge fund bets went down by 6 in recent months. ADT Inc. (NYSE:ADT) was in 24 hedge funds’ portfolios at the end of December. The all time high for this statistic is 30. Our calculations also showed that ADT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 30 hedge funds in our database with ADT holdings at the end of September.
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 124 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.
Bill Miller of Miller Value Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s analyze the key hedge fund action encompassing ADT Inc. (NYSE:ADT).
Do Hedge Funds Think ADT Is A Good Stock To Buy Now?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADT over the last 22 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Bill Miller’s Miller Value Partners has the biggest position in ADT Inc. (NYSE:ADT), worth close to $98.4 million, accounting for 3% of its total 13F portfolio. The second most bullish fund manager is Greenvale Capital, led by Bruce Emery, holding a $40 million position; 3.8% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish consist of Joe Milano’s Greenhouse Funds, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to ADT Inc. (NYSE:ADT), around 3.84% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, earmarking 2.99 percent of its 13F equity portfolio to ADT.
Seeing as ADT Inc. (NYSE:ADT) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few funds who were dropping their positions entirely heading into Q1. At the top of the heap, Frank Fu’s CaaS Capital sold off the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $15.2 million in stock. Daniel S. Och’s fund, OZ Management, also dumped its stock, about $11.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 6 funds heading into Q1.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ADT Inc. (NYSE:ADT) but similarly valued. We will take a look at JOYY Inc. (NASDAQ:YY), OneMain Holdings Inc (NYSE:OMF), ICL Group Ltd. (NYSE:ICL), Federal Realty Investment Trust (NYSE:FRT), Globus Medical Inc (NYSE:GMED), Alaska Air Group, Inc. (NYSE:ALK), and Nutanix, Inc. (NASDAQ:NTNX). This group of stocks’ market valuations match ADT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| YY | 20 | 205802 | -11 |
| OMF | 30 | 654934 | -3 |
| ICL | 5 | 27624 | 0 |
| FRT | 17 | 60013 | 3 |
| GMED | 34 | 192415 | 1 |
| ALK | 35 | 552782 | 1 |
| NTNX | 24 | 836873 | 0 |
| Average | 23.6 | 361492 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $361 million. That figure was $281 million in ADT’s case. Alaska Air Group, Inc. (NYSE:ALK) is the most popular stock in this table. On the other hand ICL Group Ltd. (NYSE:ICL) is the least popular one with only 5 bullish hedge fund positions. ADT Inc. (NYSE:ADT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADT is 54.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on ADT as the stock returned 17.7% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
