Were Hedge Funds Right About Skyworks Solutions (SWKS)?

At Insider Monkey, we pore over the filings of nearly 887 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31st. In this article, we will use that wealth of knowledge to determine whether or not Skyworks Solutions Inc (NASDAQ:SWKS) makes for a good investment right now.

Skyworks Solutions Inc (NASDAQ:SWKS) has experienced a decrease in enthusiasm from smart money of late. Skyworks Solutions Inc (NASDAQ:SWKS) was in 41 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 50. There were 50 hedge funds in our database with SWKS positions at the end of the third quarter. Our calculations also showed that SWKS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

James Dondero of Highland Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 let’s take a peek at the fresh hedge fund action encompassing Skyworks Solutions Inc (NASDAQ:SWKS).

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

At fourth quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the third quarter of 2020. By comparison, 43 hedge funds held shares or bullish call options in SWKS a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in Skyworks Solutions Inc (NASDAQ:SWKS), which was worth $283.2 million at the end of the fourth quarter. On the second spot was Platinum Asset Management which amassed $98.3 million worth of shares. Select Equity Group, Arrowstreet Capital, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Platinum Asset Management allocated the biggest weight to Skyworks Solutions Inc (NASDAQ:SWKS), around 2.26% of its 13F portfolio. Thames Capital Management is also relatively very bullish on the stock, dishing out 2.13 percent of its 13F equity portfolio to SWKS.

Since Skyworks Solutions Inc (NASDAQ:SWKS) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that elected to cut their full holdings last quarter. Intriguingly, John Hurley’s Cavalry Asset Management dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $85.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $70.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Skyworks Solutions Inc (NASDAQ:SWKS). We will take a look at First Republic Bank (NYSE:FRC), Hormel Foods Corporation (NYSE:HRL), D.R. Horton, Inc. (NYSE:DHI), Weyerhaeuser Co. (NYSE:WY), ZTO Express (Cayman) Inc. (NYSE:ZTO), PG&E Corporation (NYSE:PCG), and Verisign, Inc. (NASDAQ:VRSN). This group of stocks’ market values resemble SWKS’s market value.

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As you can see these stocks had an average of 42.7 hedge funds with bullish positions and the average amount invested in these stocks was $2547 million. That figure was $764 million in SWKS’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 17 bullish hedge fund positions. Skyworks Solutions Inc (NASDAQ:SWKS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SWKS is 45.1. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on SWKS as the stock returned 18.9% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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