Why You Should Invest In These Cheap Public Utilities Stocks

The steadily-declining unemployment rate and the strengthening U.S economy have been acting as tailwinds for the public utilities sector lately. Moreover, the wireless and Voice over Internet Protocol (VoIP) services have been leaving traditional telephone networks in their dust, so the public utilities sector and the telecom sub-sector in particular have been shaped by new technology and innovation. In the following article we will provide a list of five low-priced public utilities stocks that the elite hedge funds tracked by Insider Monkey have been piling into lately. However, it is worth noting that most of these five stocks can be categorized as telecom stocks.

But why do we track hedge fund activities? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 60 percentage points over the 36 month period beginning in September 2012, delivering returns of 118% (read the details here).

5. ShoreTel Inc (NASDAQ:SHOR)

Investors with Long Positions (as of June 30): 21

Aggregate Value of Investors’ Holdings (as of June 30): $115.94 Million

The number of hedge funds observed by our team holding stakes in ShoreTel Inc (NASDAQ:SHOR) decreased by one during the June quarter. Even so, the value of their holdings grew by $7.32 million over this period. It is also worth mentioning that these hedge funds own approximately 26.50% of the company’s outstanding shares as of June 30, which suggests money managers’ confidence in the stock. ShoreTel’s stock performance has included numerous ups-and-downs throughout the year, with the end result being that its shares have managed to deliver a return of slightly over 1% year-to-date. The provider of business communication solutions delivered relatively strong financial results in the most recent quarter, and expects its revenue to be in the range of $86 million-to-$91 million for the current financial quarter. Jim Simons’ Renaissance Technologies reported owning 1.43 million shares of ShoreTel Inc (NASDAQ:SHOR) as of June 30.

4. Windstream Holdings Inc. (NASDAQ:WIN)

Investors with Long Positions (as of June 30): 21

Aggregate Value of Investors’ Holdings (as of June 30): $72.64 Million

Three more hedge funds within our database had Windstream Holdings Inc. (NASDAQ:WIN) among their holdings at the end of the second quarter than at the beginning, whereas the value of their investments in the stock shrank by $34.36 million. Windstream, a telecom company that provides cloud computing, and broadband and voice services, spun off its infrastructure assets as Communications Sales & Leasing Inc (NASDAQ:CSAL) earlier this year, which triggered a strong wave of selloffs of the company’s stock. However, the company delivered a brilliant stock performance in August, when its shares gained 48%, mainly thanks to the company’s strong second quarter financial results. Sandell Asset Management, founded by Tom Sandell, acquired a 2.57 million-share stake in Windstream Holdings Inc. (NASDAQ:WIN) during the recent quarter.

3. Sprint Corp (NYSE:S)

Investors with Long Positions (as of June 30): 23

Aggregate Value of Investors’ Holdings (as of June 30): $452.06 Million

The number of hedge funds with positions in Sprint Corp (NYSE:S) remained unchanged in the second quarter, while the value of these positions fell by $46.19 million. The shares of the mobile carrier jumped significantly following the launch of its new “iPhone Forever” promotion back in August, which allows its customers to get a new iPhone for $22 a month. Additionally, customers who trade in their old iPhones to Sprint are set to pay $15 per month for a new iPhone. This promotion has assisted the company in delivering a return of over 5% year-to-date. From the massive pool of hedge funds that we observe, Jamie Zimmerman’s Litespeed Management is one of the top shareholders of Sprint Corp (NYSE:S), with 10.69 million shares.

2. BlackBerry Ltd (NASDAQ:BBRY)

Investors with Long Positions (as of June 30): 23

Aggregate Value of Investors’ Holdings (as of June 30): $653.24 Million

BlackBerry Ltd (NASDAQ:BBRY) lost some interest among hedge funds during the second quarter, as the number of money managers invested in the stock was down by four quarter-over-quarter. Nevertheless, the value of the money invested in BlackBerry’s shares increased by $29.45 million during the same time span. It has been rumored that BlackBerry intends to release a new phone in an attempt to make the company’s smartphone business profitable again. However, the company has not announced any upcoming BlackBerry phones as of yet. Furthermore, the company is set to report its financial results for its fiscal second quarter of 2016 on September 25, so market participants can get new insight into its future prospects. Let’s not forget to mention that the shares of BlackBerry have lost over 32% year-to-date. Cliff Asness’ AQR Capital Management reported an ownership stake of 3.81 million shares in BlackBerry Ltd (NASDAQ:BBRY) via its latest 13F filing with the SEC.

1. Frontier Communications Corp (NASDAQ:FTR)

Investors with Long Positions (as of June 30): 41

Aggregate Value of Investors’ Holdings (as of June 30): $604.55 Million

41 hedge funds owned Frontier Communications Corp (NASDAQ:FTR) at the end of the second quarter, up by 19 quarter-over-quarter. Similarly, the value of hedge funds’ holdings in the stock grew by $332.24 million during the three-month period, more than doubling. The telecommunications company has been aggressively seeking ways to expand its business by purchasing assets from AT&T Inc. (NYSE:T) and Verizon Communications Inc.(NYSE:VZ) in recent years. The company’s landline business has been on a steady downtrend over the past few years, so Frontier Communications was forced to change its strategic focus. Meanwhile, the company’s stock performance has been very weak in 2015, as its shares have lost over 20% since the beginning of the year. Seth Klarman’s Baupost Group acquired a new stake of 13.5 million shares in Frontier Communications Corp (NASDAQ:FTR) during the recent quarter.

Disclosure: None