Asma UL Husna
·6 min read
In this article you are going to find out whether hedge funds think Verizon Communications Inc. (NYSE:VZ) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Verizon (VZ) stock a buy or sell? Money managers were getting more optimistic. The number of bullish hedge fund positions improved by 2 lately. Verizon Communications Inc. (NYSE:VZ) was in 67 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 68. Our calculations also showed that VZ isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 65 hedge funds in our database with VZ positions at the end of the third quarter.
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.
Ryan Tolkin, CIO of Schonfeld Strategic Advisors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 best cheap stocks to buy now 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 (or at the end of this article). Now let's review the fresh hedge fund action regarding Verizon Communications Inc. (NYSE:VZ).
Do Hedge Funds Think VZ Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 67 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VZ over the last 22 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Berkshire Hathaway was the largest shareholder of Verizon Communications Inc. (NYSE:VZ), with a stake worth $8619.6 million reported as of the end of December. Trailing Berkshire Hathaway was D E Shaw, which amassed a stake valued at $388.8 million. AQR Capital Management, Two Sigma Advisors, and Adage Capital 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 Heathbridge Capital Management allocated the biggest weight to Verizon Communications Inc. (NYSE:VZ), around 9.1% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, setting aside 4.15 percent of its 13F equity portfolio to VZ.
Consequently, key hedge funds were breaking ground themselves. Berkshire Hathaway, managed by Warren Buffett, created the biggest position in Verizon Communications Inc. (NYSE:VZ). Berkshire Hathaway had $8.6196 billion invested in the company at the end of the quarter. Nicholas Bagnall's Te Ahumairangi Investment Management also made a $21.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Peter S. Stamos's Stamos Capital, and Alec Litowitz and Ross Laser's Magnetar Capital.
Let's also examine hedge fund activity in other stocks similar to Verizon Communications Inc. (NYSE:VZ). These stocks are Adobe Inc. (NASDAQ:ADBE), Comcast Corporation (NASDAQ:CMCSA), Netflix, Inc. (NASDAQ:NFLX), The Coca-Cola Company (NYSE:KO), NIKE, Inc. (NYSE:NKE), Pinduoduo Inc. (NASDAQ:PDD), and Toyota Motor Corporation (NYSE:TM). This group of stocks' market valuations are similar to VZ's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADBE,114,11927730,8 CMCSA,84,8831767,2 NFLX,116,15633343,12 KO,62,24683372,2 NKE,82,6285513,7 PDD,54,10528058,20 TM,11,797163,-1 Average,74.7,11240992,7.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 74.7 hedge funds with bullish positions and the average amount invested in these stocks was $11241 million. That figure was $10503 million in VZ's case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. Verizon Communications Inc. (NYSE:VZ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VZ is 63.2. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and surpassed the market again by 1.6 percentage points. Unfortunately VZ wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); VZ investors were disappointed as the stock returned -4.3% since the end of December (through 3/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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