Sonus Networks, Inc. (SONS): Are Hedge Funds Right About This Stock?

Is Sonus Networks, Inc. (NASDAQ:SONS) a buy, sell, or hold? Prominent investors are getting less optimistic. The number of bullish hedge fund bets stayed the same which is a slightly negative development in our experience

In the eyes of most stock holders, hedge funds are seen as worthless, old financial vehicles of years past. While there are more than 8000 funds trading at the moment, we look at the crème de la crème of this club, about 450 funds. It is estimated that this group controls the lion’s share of the smart money’s total asset base, and by keeping an eye on their best equity investments, we have brought to light a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Equally as integral, bullish insider trading activity is a second way to parse down the investments you’re interested in. There are plenty of incentives for an executive to get rid of shares of his or her company, but just one, very simple reason why they would initiate a purchase. Many empirical studies have demonstrated the valuable potential of this method if piggybackers understand where to look (learn more here).

Now, it’s important to take a glance at the recent action regarding Sonus Networks, Inc. (NASDAQ:SONS).

How are hedge funds trading Sonus Networks, Inc. (NASDAQ:SONS)?

At the end of the first quarter, a total of 11 of the hedge funds we track were bullish in this stock, a change of 0% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially.

According to our comprehensive database, Empire Capital Management, managed by Scott Fine and Peter Richards, holds the biggest position in Sonus Networks, Inc. (NASDAQ:SONS). Empire Capital Management has a $100 million position in the stock, comprising 9.6% of its 13F portfolio. Sitting at the No. 2 spot is Artis Capital Management, managed by Stuart Peterson, which held a $16.8 million position; 6.3% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions include Steven Cohen’s SAC Capital Advisors, Chuck Royce’s Royce & Associates and D. E. Shaw’s D E Shaw.

Since Sonus Networks, Inc. (NASDAQ:SONS) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies that elected to cut their entire stakes in Q1. It’s worth mentioning that Jim Simons’s Renaissance Technologies sold off the largest position of the “upper crust” of funds we monitor, comprising close to $1.6 million in stock.. Israel Englander’s fund, Millennium Management, also cut its stock, about $0.8 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Sonus Networks, Inc. (NASDAQ:SONS)?

Insider trading activity, especially when it’s bullish, is particularly usable when the primary stock in question has seen transactions within the past half-year. Over the last six-month time frame, Sonus Networks, Inc. (NASDAQ:SONS) has experienced 1 unique insiders purchasing, and 1 insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to Sonus Networks, Inc. (NASDAQ:SONS). These stocks are 8×8, Inc. (NASDAQ:EGHT), Vocera Communications Inc (NYSE:VCRA), Infinera Corp. (NASDAQ:INFN), Harmonic Inc (NASDAQ:HLIT), and Tellabs, Inc. (NASDAQ:TLAB). This group of stocks are in the communication equipment industry and their market caps are closest to SONS’s market cap.

With the returns exhibited by the aforementioned time-tested strategies, retail investors must always keep an eye on hedge fund and insider trading sentiment, and Sonus Networks, Inc. (NASDAQ:SONS) is an important part of this process.

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