Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Verizon Communications Inc. (NYSE:VZ) based on that data.
Is Verizon Communications Inc. (NYSE:VZ) undervalued? Hedge funds are taking an optimistic view. The number of long hedge fund bets went up by 2 in recent months. Our calculations also showed that VZ isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). VZ was in 56 hedge funds' portfolios at the end of the third quarter of 2019. There were 54 hedge funds in our database with VZ holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
[caption id="attachment_673253" align="aligncenter" width="473"] Jeffrey Talpins of Element Capital[/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. Let's take a look at the fresh hedge fund action regarding Verizon Communications Inc. (NYSE:VZ).
What does smart money think about Verizon Communications Inc. (NYSE:VZ)?
At the end of the third quarter, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 51 hedge funds with a bullish position in VZ a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Verizon Communications Inc. (NYSE:VZ), which was worth $566.3 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $532.5 million worth of shares. Adage Capital Management, D E Shaw, and Renaissance Technologies 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 Circle Road Advisors allocated the biggest weight to Verizon Communications Inc. (NYSE:VZ), around 6.42% of its portfolio. NWI Management is also relatively very bullish on the stock, earmarking 3.55 percent of its 13F equity portfolio to VZ.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the biggest position in Verizon Communications Inc. (NYSE:VZ). Two Sigma Advisors had $23.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also initiated a $11.9 million position during the quarter. The other funds with new positions in the stock are Kenneth Tropin's Graham Capital Management, Jeffrey Talpins's Element Capital Management, and Perella Weinberg Partners.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Verizon Communications Inc. (NYSE:VZ) but similarly valued. We will take a look at Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), The Walt Disney Company (NYSE:DIS), Royal Dutch Shell plc (NYSE:RDS), and The Coca-Cola Company (NYSE:KO). This group of stocks' market caps are similar to VZ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSM,52,5161771,10 DIS,105,4233957,-8 RDS,29,1386135,-5 KO,50,23639411,2 Average,59,8605319,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 59 hedge funds with bullish positions and the average amount invested in these stocks was $8605 million. That figure was $2374 million in VZ's case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Royal Dutch Shell plc (NYSE:RDS) is the least popular one with only 29 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. 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 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. Unfortunately VZ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VZ investors were disappointed as the stock returned 0.8% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.