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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Verisign, Inc. (NASDAQ:VRSN) and determine whether hedge funds had an edge regarding this stock.
Verisign, Inc. (NASDAQ:VRSN) was in 47 hedge funds' portfolios at the end of June. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. VRSN has seen an increase in hedge fund sentiment recently. There were 41 hedge funds in our database with VRSN holdings at the end of March. Our calculations also showed that VRSN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are several signals shareholders have at their disposal to assess publicly traded companies. A couple of the less known signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the elite fund managers can outpace their index-focused peers by a superb margin (see the details here).
Warren Buffett of Berkshire Hathaway
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to go over the key hedge fund action regarding Verisign, Inc. (NASDAQ:VRSN).
What does smart money think about Verisign, Inc. (NASDAQ:VRSN)?
Heading into the third quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VRSN over the last 20 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Verisign, Inc. (NASDAQ:VRSN) was held by Berkshire Hathaway, which reported holding $2650.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $1512.1 million position. Other investors bullish on the company included D E Shaw, Cantillon Capital Management, and Palestra Capital Management. In terms of the portfolio weights assigned to each position Atalan Capital allocated the biggest weight to Verisign, Inc. (NASDAQ:VRSN), around 10.93% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, setting aside 10.03 percent of its 13F equity portfolio to VRSN.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Palestra Capital Management, managed by Andrew Immerman and Jeremy Schiffman, created the most valuable position in Verisign, Inc. (NASDAQ:VRSN). Palestra Capital Management had $163.9 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $9.4 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Michael Gelband's ExodusPoint Capital, and Anthony S. Daffer's Provenire Capital.
Let's now take a look at hedge fund activity in other stocks similar to Verisign, Inc. (NASDAQ:VRSN). These stocks are Moderna, Inc. (NASDAQ:MRNA), Motorola Solutions Inc (NYSE:MSI), V.F. Corporation (NYSE:VFC), Parker-Hannifin Corporation (NYSE:PH), Twitter Inc (NYSE:TWTR), Marvell Technology Group Ltd. (NASDAQ:MRVL), and American Water Works Company, Inc. (NYSE:AWK). This group of stocks' market caps are closest to VRSN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRNA,37,788433,12 MSI,36,535822,2 VFC,27,558958,8 PH,39,1172205,7 TWTR,68,1278023,13 MRVL,41,664690,12 AWK,30,653000,0 Average,39.7,807304,7.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.7 hedge funds with bullish positions and the average amount invested in these stocks was $807 million. That figure was $6246 million in VRSN's case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 27 bullish hedge fund positions. Verisign, Inc. (NASDAQ:VRSN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRSN is 64.4. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately VRSN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VRSN were disappointed as the stock returned 3.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.