Were Hedge Funds Right About Deserting Altice USA, Inc. (ATUS)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Altice USA, Inc. (NYSE:ATUS)? The smart money sentiment can provide an answer to this question.

Is Altice USA, Inc. (NYSE:ATUS) the right pick for your portfolio? Hedge funds were cutting their exposure. The number of bullish hedge fund bets retreated by 4 lately. Altice USA, Inc. (NYSE:ATUS) was in 44 hedge funds’ portfolios at the end of June. The all time high for this statistic is 62. Our calculations also showed that ATUS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In today’s marketplace there are dozens of indicators investors put to use to grade stocks. Two of the less utilized indicators are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best investment managers can outpace their index-focused peers by a healthy margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Stuart Zimmer of Zimmer Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a glance at the new hedge fund action regarding Altice USA, Inc. (NYSE:ATUS).

Do Hedge Funds Think ATUS Is A Good Stock To Buy Now?

At second quarter’s end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ATUS over the last 24 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Soroban Capital Partners, managed by Eric W. Mandelblatt, holds the biggest position in Altice USA, Inc. (NYSE:ATUS). Soroban Capital Partners has a $921.8 million position in the stock, comprising 7.8% of its 13F portfolio. Sitting at the No. 2 spot is Zimmer Partners, managed by Stuart J. Zimmer, which holds a $236.5 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Ross Turner’s Pelham Capital, Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management and John Armitage’s Egerton Capital Limited. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to Altice USA, Inc. (NYSE:ATUS), around 13.06% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, dishing out 12.01 percent of its 13F equity portfolio to ATUS.

Seeing as Altice USA, Inc. (NYSE:ATUS) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers that decided to sell off their positions entirely in the second quarter. Intriguingly, Parag Vora’s HG Vora Capital Management dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising about $123.6 million in stock. Eric Bannasch’s fund, Cadian Capital, also dropped its stock, about $41.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Altice USA, Inc. (NYSE:ATUS). These stocks are Natura &Co Holding S.A. (NYSE:NTCO), The Liberty SiriusXM Group (NASDAQ:LSXMA), XPO Logistics Inc (NYSE:XPO), NICE Ltd (NASDAQ:NICE), Westinghouse Air Brake Technologies Corporation (NYSE:WAB), Textron Inc. (NYSE:TXT), and Discovery Inc. (NASDAQ:DISCA). All of these stocks’ market caps resemble ATUS’s market cap.

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As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $1505 million. That figure was $3176 million in ATUS’s case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 5 bullish hedge fund positions. Altice USA, Inc. (NYSE:ATUS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ATUS is 59.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately ATUS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ATUS were disappointed as the stock returned -47.1% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.