Should You Avoid Aviat Networks Inc (AVNW)?

Many investors, including Carl Icahn or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Aviat Networks Inc (NASDAQ:AVNW) changed recently.

Aviat Networks Inc (NASDAQ:AVNW) has seen a decrease in hedge fund sentiment in recent months. Aviat Networks Inc (NASDAQ:AVNW) was in 5 hedge funds’ portfolios at the end of the third quarter of 2015. There were 6 hedge funds in our database with Aviat Networks Inc (NASDAQ:AVNW) holdings at the end of the previous quarter. The hedge fund sentiment echoed a similar sentiment as that of the trading behavior of Aviat Networks Inc (NASDAQ:AVNW), as its stock was down 17.46% during the quarter. For a better understanding of the hedge fund behavior, we will cover hedge funds that held positions in the company, at the end of the third quarter.

At the end of this article, we will also compare Aviat Networks Inc (NASDAQ:AVNW) to other stocks, including Carolina Bank Holding Inc. (NC) (NASDAQ:CLBH), Vericel Corp (NASDAQ:VCEL), and Town Sports International Holdings, Inc. (NASDAQ:CLUB) to get a better sense of its popularity.

If you’d ask most stock holders, hedge funds are assumed to be underperforming, outdated investment tools of yesteryear. While there are more than 8000 funds in operation at the moment, our researchers choose to focus on the elite of this club, approximately 700 funds. These investment experts orchestrate the lion’s share of the smart money’s total capital, and by keeping track of their unrivaled stock picks, Insider Monkey has formulated a number of investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, we’re going to go over the key action regarding Aviat Networks Inc (NASDAQ:AVNW).

How have hedgies been trading Aviat Networks Inc (NASDAQ:AVNW)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 17% from the second quarter. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund and institutional investor database, Steel Partners, managed by Warren Lichtenstein, holds the number one position in Aviat Networks Inc (NASDAQ:AVNW). Steel Partners has a $8.4 million position in the stock, comprising 1.3% of its 13F portfolio. Coming in second is Royce & Associates, managed by Chuck Royce, which holds a $3.8 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Renaissance Technologies, Peter A. Wright’s P.A.W. CAPITAL PARTNERS, and David Cohen and Harold Levy’s Iridian Asset Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically, a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case here because none of the 700+ hedge funds tracked by Insider Monkey identified Aviat Networks Inc (NASDAQ:AVNW) as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Aviat Networks Inc (NASDAQ:AVNW) but similarly valued. These stocks are Carolina Bank Holding Inc. (NC) (NASDAQ:CLBH), Vericel Corp (NASDAQ:VCEL), Town Sports International Holdings, Inc. (NASDAQ:CLUB), and Ion Geophysical Corp (NYSE:IO). All of these stocks’ market caps match Aviat Networks Inc (NASDAQ:AVNW)’s market cap.

As you can see, these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $15 million in Aviat Networks Inc (NASDAQ:AVNW)’s case. Ion Geophysical Corp (NYSE:IO) is the most popular stock in this table. On the other hand, Carolina Bank Holding Inc. (NC) (NASDAQ:CLBH) is the least popular one with only 4 bullish hedge fund positions. Aviat Networks Inc (NASDAQ:AVNW) 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. In this regard, Ion Geophysical Corp (NYSE:IO) might be a better candidate to consider a long position.