Hedge Funds Were Buying Ciena Corporation (CIEN) Before The Coronavirus
We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Ciena Corporation (NASDAQ:CIEN) in this article.
Ciena Corporation (NASDAQ:CIEN) was in 35 hedge funds' portfolios at the end of December. CIEN shareholders have witnessed an increase in enthusiasm from smart money recently. There were 31 hedge funds in our database with CIEN holdings at the end of the previous quarter. Our calculations also showed that CIEN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="aligncenter" width="400"]
Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a glance at the recent hedge fund action regarding Ciena Corporation (NASDAQ:CIEN).
What does smart money think about Ciena Corporation (NASDAQ:CIEN)?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CIEN over the last 18 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D. E. Shaw's D E Shaw has the most valuable position in Ciena Corporation (NASDAQ:CIEN), worth close to $112.8 million, amounting to 0.1% of its total 13F portfolio. On D E Shaw's heels is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $89.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include Cliff Asness's AQR Capital Management, Renaissance Technologies and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to Ciena Corporation (NASDAQ:CIEN), around 2.56% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, earmarking 2.35 percent of its 13F equity portfolio to CIEN.
As aggregate interest increased, some big names have jumped into Ciena Corporation (NASDAQ:CIEN) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most outsized position in Ciena Corporation (NASDAQ:CIEN). Two Sigma Advisors had $5.9 million invested in the company at the end of the quarter. Larry Foley and Paul Farrell's Bronson Point Partners also initiated a $4.2 million position during the quarter. The other funds with brand new CIEN positions are Mike Masters's Masters Capital Management, Tor Minesuk's Mondrian Capital, and Kevin McCarthy's Breakline Capital.
Let's also examine hedge fund activity in other stocks similar to Ciena Corporation (NASDAQ:CIEN). These stocks are ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), SYNNEX Corporation (NYSE:SNX), Enel Chile S.A. (NYSE:ENIC), and First American Financial Corp (NYSE:FAF). All of these stocks' market caps are similar to CIEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACAD,34,2320902,7 SNX,22,389913,-2 ENIC,6,39114,-2 FAF,42,895235,4 Average,26,911291,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $911 million. That figure was $522 million in CIEN's case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 6 bullish hedge fund positions. Ciena Corporation (NASDAQ:CIEN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on CIEN as the stock returned -17.9% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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