Is Lumentum Holdings Inc (NASDAQ:LITE) a good equity to bet on 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 Lumentum Holdings Inc (NASDAQ:LITE) the right investment to pursue these days? Money managers are taking a pessimistic view. The number of long hedge fund bets were trimmed by 1 recently. Our calculations also showed that LITE isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are perceived as unimportant, old investment tools of the past. While there are more than 8000 funds with their doors open at present, Our researchers choose to focus on the crème de la crème of this club, approximately 750 funds. These money managers handle bulk of the hedge fund industry's total capital, and by following their top picks, Insider Monkey has unsheathed numerous investment strategies that have historically outstripped the broader indices. Insider Monkey's flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the latest hedge fund action encompassing Lumentum Holdings Inc (NASDAQ:LITE).
How are hedge funds trading Lumentum Holdings Inc (NASDAQ:LITE)?
Heading into the third quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. By comparison, 36 hedge funds held shares or bullish call options in LITE a year ago. So, let's see 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 Citadel Investment Group, which reported holding $78.5 million worth of stock at the end of March. It was followed by Point72 Asset Management with a $49.4 million position. Other investors bullish on the company included Alyeska Investment Group, Balyasny Asset Management, and AQR Capital Management.
Due to the fact that Lumentum Holdings Inc (NASDAQ:LITE) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that slashed their full holdings last quarter. Intriguingly, Nick Niell's Arrowgrass Capital Partners cut the largest stake of all the hedgies followed by Insider Monkey, comprising about $6.1 million in stock, and Larry Foley and Paul Farrell's Bronson Point Partners was right behind this move, as the fund dropped about $5.7 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lumentum Holdings Inc (NASDAQ:LITE) but similarly valued. These stocks are First Financial Bankshares Inc (NASDAQ:FFIN), Tribune Media Company (NYSE:TRCO), Tempur Sealy International Inc. (NYSE:TPX), and The Brink's Company (NYSE:BCO). This group of stocks' market valuations match LITE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FFIN,12,30841,-1 TRCO,31,1246968,3 TPX,33,1480589,4 BCO,27,460932,2 Average,25.75,804833,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $805 million. That figure was $342 million in LITE's case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 12 bullish hedge fund positions. Lumentum Holdings Inc (NASDAQ:LITE) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LITE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LITE were disappointed as the stock returned 0.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.