This Metric Says You Are Smart to Buy EarthLink, Inc. (ELNK)

Now, according to many traders, hedge funds are perceived as delayed, old financial tools of an era lost to time. Although there are over 8,000 hedge funds trading today, Insider Monkey focuses on the aristocrats of this group, about 525 funds. It is assumed that this group has its hands on the lion’s share of the hedge fund industry’s total assets, and by paying attention to their best investments, we’ve deciphered a number of investment strategies that have historically beaten the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 33 percentage points in 11 months (see all of our picks from August).

Equally as necessary, bullish insider trading activity is another way to look at the world of equities. There are lots of reasons for an upper level exec to sell shares of his or her company, but only one, very clear reason why they would behave bullishly. Plenty of academic studies have demonstrated the useful potential of this method if “monkeys” know what to do (learn more here).

Thus, it’s important to study the latest info for EarthLink, Inc. (NASDAQ:ELNK).

How have hedgies been trading EarthLink, Inc. (NASDAQ:ELNK)?

In preparation for the third quarter, a total of 15 of the hedge funds we track were bullish in this stock, a change of 15% from the previous quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly.

According to our 13F database, Renaissance Technologies, managed by Jim Simons, holds the most valuable position in EarthLink, Inc. (NASDAQ:ELNK). Renaissance Technologies has a $37.7 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is Sandell Asset Management, managed by Tom Sandell, which held a $22 million position; the fund has 3.7% of its 13F portfolio invested in the stock. Some other hedgies with similar optimism include Israel Englander’s Millennium Management, Chuck Royce’s Royce & Associates and Mario Gabelli’s GAMCO Investors.

With a general bullishness amongst the titans, particular hedge funds have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, created the most outsized position in EarthLink, Inc. (NASDAQ:ELNK). Renaissance Technologies had 37.7 million invested in the company at the end of the quarter. Tom Sandell’s Sandell Asset Management also initiated a $22 million position during the quarter. The other funds with brand new ELNK positions are Israel Englander’s Millennium Management, Chuck Royce’s Royce & Associates, and Mario Gabelli’s GAMCO Investors.

How are insiders trading EarthLink, Inc. (NASDAQ:ELNK)?

Insider buying is particularly usable when the company in focus has seen transactions within the past half-year. Over the last 180-day time frame, EarthLink, Inc. (NASDAQ:ELNK) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll go over the relationship between both of these indicators in other stocks similar to EarthLink, Inc. (NASDAQ:ELNK). These stocks are magicJack VocalTec Ltd (NASDAQ:CALL), Shenandoah Telecommunications Company (NASDAQ:SHEN), Atlantic Tele-Network, Inc. (NASDAQ:ATNI), Consolidated Communications Holdings Inc (NASDAQ:CNSL), and Cincinnati Bell Inc. (NYSE:CBB). All of these stocks are in the telecom services – domestic industry and their market caps are similar to ELNK’s market cap.

Using the returns explained by the previously mentioned analyses, average investors should always watch hedge fund and insider trading activity, and EarthLink, Inc. (NASDAQ:ELNK) shareholders fit into this picture quite nicely.

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