We recently compiled a list of the 14 Worst 52-Week High Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where InterDigital, Inc. (NASDAQ:IDCC) stands against the other 52-week high stocks.
The start of the US Federal Reserve cutting cycle ushers a new era in the investment world after one of the longest bull runs. Major US Indices are at record highs, well supported by an economy that has shrugged off the adverse effects of high interest rates. A resilient economy has been the catalyst behind companies delivering better-than-expected results, helping shore up sentiments in the equity markets. With the S&P 500 at record highs, so are stocks trading close to 52-week highs on valuations that are getting out of hand.
READ ALSO: 12 Best Forever Stocks To Buy Now and 12 Best Long-Term Stocks to Buy According To Warren Buffett.
The first interest rate cut comes amid growing concern about a slowing US economy depicted by weakness in the labor market, slowing manufacturing, and weak consumer purchasing power. The impact of high interest rates for a long time is already being felt on consumer purchasing power taking a hit to the detriment of small and medium businesses.
Likewise, Ray Dalio the founder of Bridgewater Associates believes the Fed faces a tough balancing act as it commences the cutting cycle. In an interview with CNBC, Dalio reiterated that the Fed must find a way to keep interest rates high to prevent inflation edging higher and keeping them low enough to offer support to an economy that is facing an enormous amount of debt.
While there were fears that a steeper interest rate cut could be the worst outcome for stocks on fueling concerns about the economy’s health; that has not been the case. The upward momentum in the equity markets appears to have gathered steam depicted by the S&P 500 at all time highs after the cut.
Disappointing economic data in recent months has been the catalyst behind BTIG analyst Jonathan Krinsky reiterating that the risk-reward in the near term is now skewed to the downside regardless of what the Federal Reserve does. The sentiments come amid concerns that the Fed might have waited too long before cutting.
According to Krinsky, consumer staple stocks remain the most susceptible to significant downside risk. That’s because it is one of the sectors that has felt the full brunt of high interest rates taking a toll on consumer purchasing power.
On the other hand, the real estate sector, especially home-building stocks, could be big winners on the Fed cutting by 50 basis points. In the three months leading up to the rate cut cycle, homebuilders stocks outperformed the S&P 500, and building materials have also seen success. Over the last quarter, shares of homebuilders have risen by 26%, while building materials have seen a 13% increase, in contrast to the S&P 500, which has only gone up by 2%.
Shaniel Ramjee, who co-leads the multi-asset division at Pictet Asset Management’s London branch, mentioned that his group has been purchasing shares of U.S. financial firms in the past few weeks in preparation for expected interest rate reductions.
The analyst is confident that the financial sector will gain from a steepening yield curve due to increased support from lower interest rates for consumers and greater economic activity when interest rates are reduced.
Stocks trading near the 52-week highs could face pressure as valuation scrutiny gathers momentum. Uncertainty over the upcoming US presidential election could also weigh significantly on overvalued stocks trading close to their 52-week highs. Consequently, now could be the best time to pay attention to stocks that are trading near their 52-week highs and are moderately shorted.
Our Methodology
We used the Finviz stock screener to scan for companies that are trading near their 52-week highs and have high short interest. We identified 25 stocks that fit our criteria and then picked the 14 that were the most popular among elite hedge funds. The stocks are ranked in ascending order, based on their short interest.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician installing advanced cellular equipment at a 5G cell tower.
InterDigital, Inc. (NASDAQ:IDCC)
52 Week Range: $74.65 – $140.60
Current Share Price: $135.08
Short % of Shares Outstanding: 17.50%
Number of Hedge Funds holding stakes as of Q2 2024: 29
InterDigital, Inc. (NASDAQ:IDCC) is a global research and development company specializing in wireless visual artificial intelligence and other related technologies. It designs and develops technologies that enable connection in a range of communications and entertainment products and services.
InterDigital, Inc. (NASDAQ:IDCC) remains in a strong position for future growth owing to its world-class wireless, video, and AI innovation, accelerating business momentum, and large addressable markets. Likewise, management has set out an ambitious plan to generate billions in annual recurring revenue and $600 million in adjusted EBITDA by 2030.
The $1 billion annual recurring revenue target comes on the company’s revenues more than doubling over the last four years due to improved execution across key business slimes. The company is targeting revenues of upwards of $200 million in its Consumer Electronics/Internet of Things segment. It’s also targeting $300 million in revenues in its video streaming segment.
InterDigital, Inc. (NASDAQ:IDCC) has shown strong financial stability by increasing its quarterly dividend payment from $0.40 to $0.45 per share, a move that will become official in the fourth quarter of 2024.
The firm also shared impressive financial outcomes for the second quarter of 2024, achieving revenues of $223 million and setting a new record for the first half of the year with $487 million. This strong performance has led InterDigital to revise its annual revenue forecast upward by $70 million, now anticipating revenues to fall between $690 million and $740 million.
Nevertheless, InterDigital, Inc. (NASDAQ:IDCC) remains one of the worst 52-week high stocks to buy, according to short sellers going by the high short interest of 17.50%. The pessimism stems from growing concerns that the company faces stiff competition from other tech companies with big balance sheets in developing advanced technologies, such as artificial intelligence.
By the end of 2024’s June quarter, 29 out of the 912 hedge funds part of Insider Monkey’s database had held a stake in the firm. InterDigital, Inc. (NASDAQ:IDCC) largest hedge fund investor is Spencer M. Waxman’s Shannon River Fund Management due to its $51.69 million investment.
Here is what FPA Queens Road Small Cap Value Fund said about InterDigital, Inc. (NASDAQ:IDCC) in its first quarter 2024 investor letter:
“InterDigital, Inc. (NASDAQ:IDCC) is a research and development organization that develops and acquires wireless and video patents across key technologies. The company has a history of strong financial performance, opportunistically buys back shares, and pays a modest dividend. IDCC has been successfully renewing its wireless licensing agreements (Apple in 2022, Samsung in 2023) and has a growing stream of recurring licensing revenues across consumer electronics, internet of things (IoT) and automotive customers. CEO Liren Chen joined IDCC in 2021 from Qualcom and has been hiring other former Qualcom managers. The company bought back $338m of stock last year and authorized another $300m buyback in its Q4 2023 earnings release.”
Overall IDCC ranks 3rd on our list of the worst 52-week high stocks to buy according to short sellers. While we acknowledge the potential of IDCC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IDCC, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.