We can judge whether CenturyLink, Inc. (NYSE:CTL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is CenturyLink, Inc. (NYSE:CTL) a buy right now? The smart money is becoming more confident. The number of long hedge fund bets inched up by 1 lately. Our calculations also showed that CTL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). There are currently 3 ETFs with nearly 5% allocation to CTL though: Invesco S&P 500 Equal Weight Communication Services ETF (NYSE:EWCO), iShares U.S. Telecommunications ETF (BATS:IYZ), and Deep Value ETF (NYSE:DVP). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_340075" align="aligncenter" width="600"] Mason Hawkins of Southeastern Asset Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the recent hedge fund action encompassing CenturyLink, Inc. (NYSE:CTL).
Hedge fund activity in CenturyLink, Inc. (NYSE:CTL)
Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in CTL a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Southeastern Asset Management was the largest shareholder of CenturyLink, Inc. (NYSE:CTL), with a stake worth $919.3 million reported as of the end of September. Trailing Southeastern Asset Management was Citadel Investment Group, which amassed a stake valued at $34.7 million. Fairfax Financial Holdings, Millennium Management, 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 Southeastern Asset Management allocated the biggest weight to CenturyLink, Inc. (NYSE:CTL), around 16.03% of its portfolio. Knoll Capital Management is also relatively very bullish on the stock, earmarking 2.51 percent of its 13F equity portfolio to CTL.
As one would reasonably expect, some big names were leading the bulls' herd. Renaissance Technologies created the largest position in CenturyLink, Inc. (NYSE:CTL). Renaissance Technologies had $12.2 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $3.2 million position during the quarter. The other funds with brand new CTL positions are Fred Knoll's Knoll Capital Management, Paul Tudor Jones's Tudor Investment Corp, and Renee Yao's Neo Ivy Capital.
Let's also examine hedge fund activity in other stocks similar to CenturyLink, Inc. (NYSE:CTL). These stocks are DexCom, Inc. (NASDAQ:DXCM), Old Dominion Freight Line (NASDAQ:ODFL), NVR, Inc. (NYSE:NVR), and Wabtec Corporation (NYSE:WAB). All of these stocks' market caps are closest to CTL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DXCM,33,558258,3 ODFL,22,140882,-1 NVR,36,1162559,9 WAB,32,1646949,5 Average,30.75,877162,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $877 million. That figure was $1098 million in CTL's case. NVR, Inc. (NYSE:NVR) is the most popular stock in this table. On the other hand Old Dominion Freight Line (NASDAQ:ODFL) is the least popular one with only 22 bullish hedge fund positions. CenturyLink, Inc. (NYSE:CTL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CTL as the stock returned 18.1% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.