Should You Buy United States Cellular Corporation (USM)?

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at United States Cellular Corp (NYSE:USM) from the perspective of those successful funds.

United States Cellular Corp (NYSE:USM) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as B&G Foods, Inc. (NYSE:BGS), PS Business Parks Inc (NYSE:PSB), and National Health Investors Inc (NYSE:NHI) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Keeping this in mind, let’s take a look at the recent action encompassing United States Cellular Corp (NYSE:USM).

What does the smart money think about United States Cellular Corp (NYSE:USM)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter of 2016. By comparison, 8 hedge funds held shares or bullish call options in USM heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in United States Cellular Corp (NYSE:USM), worth close to $108 million, comprising 0.7% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, one of the biggest hedge funds in the world, holding a $22.7 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and D. E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that United States Cellular Corp (NYSE:USM) has witnessed no change in sentiment from the aggregate hedge fund industry, we look to see if there are any funds that slashed their entire stakes in the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group cut the largest position of the “upper crust” of funds studied by Insider Monkey, worth close to $0.3 million in stock, and Glenn Russell Dubin’s Highbridge Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to United States Cellular Corp (NYSE:USM). These stocks are B&G Foods, Inc. (NYSE:BGS), PS Business Parks Inc (NYSE:PSB), National Health Investors Inc (NYSE:NHI), and Fresh Del Monte Produce Inc (NYSE:FDP). This group of stocks’ market caps are similar to USM’s market cap.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $143 million in USM’s case. B&G Foods, Inc. (NYSE:BGS) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 7 bullish hedge fund positions. United States Cellular Corp (NYSE:USM) 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 BGS might be a better candidate to consider taking a long position in.

Disclosure: none.