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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Lumentum Holdings Inc (NASDAQ:LITE).
Is LITE stock a buy or sell? The smart money was in a bearish mood. The number of bullish hedge fund bets went down by 1 lately. Lumentum Holdings Inc (NASDAQ:LITE) was in 39 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 42. Our calculations also showed that LITE isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Charles Clough of Clough Capital Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 website. Now let's take a gander at the key hedge fund action surrounding Lumentum Holdings Inc (NASDAQ:LITE).
Do Hedge Funds Think LITE Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LITE over the last 22 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lumentum Holdings Inc (NASDAQ:LITE) was held by Fisher Asset Management, which reported holding $84.9 million worth of stock at the end of December. It was followed by Anatole Investment Management with a $84.2 million position. Other investors bullish on the company included Millennium Management, Woodline Partners, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Anatole Investment Management allocated the biggest weight to Lumentum Holdings Inc (NASDAQ:LITE), around 17.9% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, dishing out 6.5 percent of its 13F equity portfolio to LITE.
Judging by the fact that Lumentum Holdings Inc (NASDAQ:LITE) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedge funds that elected to cut their positions entirely last quarter. It's worth mentioning that Jerry Kochanski's Shelter Haven Capital Management dumped the biggest investment of the 750 funds watched by Insider Monkey, totaling close to $28.4 million in stock. Jeff Osher's fund, No Street Capital, also sold off its stock, about $11.3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Lumentum Holdings Inc (NASDAQ:LITE) but similarly valued. These stocks are Vornado Realty Trust (NYSE:VNO), Ares Capital Corporation (NASDAQ:ARCC), Zions Bancorporation, National Association (NASDAQ:ZION), Robert Half International Inc. (NYSE:RHI), National Retail Properties, Inc. (NYSE:NNN), Sealed Air Corporation (NYSE:SEE), and Knight-Swift Transportation Holdings Inc. (NYSE:KNX). All of these stocks' market caps resemble LITE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNO,23,178548,3 ARCC,15,102905,-7 ZION,28,169688,4 RHI,27,235758,-2 NNN,14,306163,-2 SEE,32,900709,1 KNX,34,429122,-18 Average,24.7,331842,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $332 million. That figure was $546 million in LITE's case. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Lumentum Holdings Inc (NASDAQ:LITE) is more popular among hedge funds. Our overall hedge fund sentiment score for LITE is 81.9. 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. 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 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Unfortunately LITE wasn't nearly as popular as these 30 stocks and hedge funds that were betting on LITE were disappointed as the stock returned -11.9% since the end of the fourth quarter (through 3/19) 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 since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.