Is Ciena Corporation (NYSE:CIEN) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Ciena Corporation (NYSE:CIEN) going to take off soon? Hedge funds are taking an optimistic view. The number of long hedge fund positions rose by 1 lately. Our calculations also showed that CIEN isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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’re going to check out the recent hedge fund action surrounding Ciena Corporation (NYSE:CIEN).
What have hedge funds been doing with Ciena Corporation (NYSE:CIEN)?
Heading into the second quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in CIEN a year ago. 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, AQR Capital Management was the largest shareholder of Ciena Corporation (NYSE:CIEN), with a stake worth $142.7 million reported as of the end of March. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $66.3 million. Renaissance Technologies, Citadel Investment Group, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names were breaking ground themselves. Columbus Circle Investors, managed by Principal Global Investors, initiated the most outsized position in Ciena Corporation (NYSE:CIEN). Columbus Circle Investors had $15.1 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $6.9 million position during the quarter. The other funds with brand new CIEN positions are Ian Simm’s Impax Asset Management, D. E. Shaw’s D E Shaw, and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ciena Corporation (NYSE:CIEN) but similarly valued. These stocks are Monolithic Power Systems, Inc. (NASDAQ:MPWR), Encompass Health Corporation (NYSE:EHC), EPR Properties (NYSE:EPR), and First American Financial Corp (NYSE:FAF). All of these stocks’ market caps resemble CIEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MPWR | 20 | 172987 | -5 |
| EHC | 24 | 464510 | -6 |
| EPR | 17 | 136803 | -5 |
| FAF | 30 | 679005 | -3 |
| Average | 22.75 | 363326 | -4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $363 million. That figure was $511 million in CIEN’s case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand EPR Properties (NYSE:EPR) is the least popular one with only 17 bullish hedge fund positions. Ciena Corporation (NYSE:CIEN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CIEN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CIEN were disappointed as the stock returned -5% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
