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Were Hedge Funds Right About Verizon Communications (VZ)?

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  • VZ
  • ^GSPC

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Verizon Communications Inc. (NYSE:VZ) based on those filings.

Is Verizon Communications Inc. (NYSE:VZ) a buy, sell, or hold? Hedge funds were becoming less hopeful. The number of bullish hedge fund bets shrunk by 6 lately. Verizon Communications Inc. (NYSE:VZ) was in 63 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 69. Our calculations also showed that VZ isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 69 hedge funds in our database with VZ holdings at the end of March.

According to most shareholders, hedge funds are assumed to be underperforming, old investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open at the moment, Our experts choose to focus on the upper echelon of this club, approximately 850 funds. These hedge fund managers watch over the lion's share of the smart money's total asset base, and by observing their unrivaled equity investments, Insider Monkey has come up with many investment strategies that have historically exceeded the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to take a look at the key hedge fund action surrounding Verizon Communications Inc. (NYSE:VZ).

Do Hedge Funds Think VZ Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 63 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 68 hedge funds with a bullish position in VZ a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is VZ A Good Stock To Buy?
Is VZ A Good Stock To Buy?

More specifically, Berkshire Hathaway was the largest shareholder of Verizon Communications Inc. (NYSE:VZ), with a stake worth $8898.9 million reported as of the end of June. Trailing Berkshire Hathaway was Diamond Hill Capital, which amassed a stake valued at $241.5 million. D E Shaw, Citadel Investment Group, and AQR 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 Heathbridge Capital Management allocated the biggest weight to Verizon Communications Inc. (NYSE:VZ), around 8.2% of its 13F portfolio. Empyrean Capital Partners is also relatively very bullish on the stock, designating 4.39 percent of its 13F equity portfolio to VZ.

Due to the fact that Verizon Communications Inc. (NYSE:VZ) has faced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies who were dropping their entire stakes by the end of the second quarter. At the top of the heap, John Overdeck and David Siegel's Two Sigma Advisors cut the biggest stake of the 750 funds monitored by Insider Monkey, comprising an estimated $160.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dumped about $121.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds by the end of the second quarter.

Let's check out hedge fund activity in other stocks similar to Verizon Communications Inc. (NYSE:VZ). These stocks are Intel Corporation (NASDAQ:INTC), salesforce.com, inc. (NYSE:CRM), Cisco Systems, Inc. (NASDAQ:CSCO), Eli Lilly and Company (NYSE:LLY), Pfizer Inc. (NYSE:PFE), Oracle Corporation (NASDAQ:ORCL), and Abbott Laboratories (NYSE:ABT). This group of stocks' market values are closest to VZ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INTC,78,6764047,-5 CRM,108,11767293,17 CSCO,60,4219112,1 LLY,64,2994849,9 PFE,67,2356906,2 ORCL,55,2889687,3 ABT,61,4367607,-4 Average,70.4,5051357,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 70.4 hedge funds with bullish positions and the average amount invested in these stocks was $5051 million. That figure was $10958 million in VZ's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Oracle Corporation (NASDAQ:ORCL) is the least popular one with only 55 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. Our overall hedge fund sentiment score for VZ is 33.9. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and surpassed the market again by 2.3 percentage points. Unfortunately VZ wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); VZ investors were disappointed as the stock returned -3.2% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.