Should You Add Verizon Communications Inc. (VZ) to Your Portfolio?

Insider Monkey has processed numerous 13F filings of hedge funds and famous investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds and investors’ positions as of the end of the third quarter. You can find write-ups about an individual hedge fund’s trades on several financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of Verizon Communications Inc. (NYSE:VZ) based on that data.

When it comes to Verizon Communications Inc. (NYSE:VZ), the best stock pickers are in an optimistic mood, as the number of bullish hedge fund bets advanced by two lately. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Wal-Mart Stores, Inc. (NYSE:WMT), JPMorgan Chase & Co. (NYSE:JPM), and The Procter & Gamble Company (NYSE:PG) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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With all of this in mind, we’re going to view the fresh action encompassing Verizon Communications Inc. (NYSE:VZ).

Hedge fund activity in Verizon Communications Inc. (NYSE:VZ)

A total of 54 funds tracked by Insider Monkey were bullish on Verizon at the end of September, up by 4% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the biggest position in Verizon Communications Inc. (NYSE:VZ), worth close to $779.7 million, amounting to 0.6% of its total 13F portfolio. The second largest stake is held by Soroban Capital Partners, managed by Eric W. Mandelblatt, which holds a $740.7 million call position; the fund has 4.5% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include Cliff Asness’ AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Now, key hedge funds were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, initiated the biggest call position in Verizon Communications Inc. (NYSE:VZ). Citadel Investment Group had $79.1 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $64.8 million investment in the stock during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management, James H. Litinsky’s JHL Capital Group, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..

Let’s now take a look at hedge fund activity in other stocks similar to Verizon Communications Inc. (NYSE:VZ). We will take a look at Wal-Mart Stores, Inc. (NYSE:WMT), JPMorgan Chase & Co. (NYSE:JPM), The Procter & Gamble Company (NYSE:PG), and Pfizer Inc. (NYSE:PFE). This group of stocks’ market valuations are similar to VZ’s market valuation.

As you can see these stocks had an average of 81 hedge funds with bullish positions and the average amount invested in these stocks was $9.67 billion. On the other hand, that figure was $3.18 billion in Verizon’s case. With 98 investors holding shares, JPMorgan Chase & Co. (NYSE:JPM) is the most popular stock in this table. On the other hand Wal-Mart Stores, Inc. (NYSE:WMT) is the least popular one with only 71 bullish hedge fund positions. Compared to these stocks Verizon Communications Inc. (NYSE:VZ) is even less popular than Wal-Mart Stores, Inc. (NYSE:WMT). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.