“The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery,” This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is CenturyLink, Inc. (NYSE:CTL) a bargain? The smart money is buying. The number of long hedge fund positions inched up by 1 recently. Our calculations also showed that CTL isn’t among the 30 most popular stocks among hedge funds. CTL was in 32 hedge funds’ portfolios at the end of the first quarter of 2019. There were 31 hedge funds in our database with CTL positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the fresh hedge fund action surrounding CenturyLink, Inc. (NYSE:CTL).
What have hedge funds been doing with CenturyLink, Inc. (NYSE:CTL)?
At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in CTL a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in CenturyLink, Inc. (NYSE:CTL) was held by Southeastern Asset Management, which reported holding $806.5 million worth of stock at the end of March. It was followed by Millennium Management with a $86.2 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Fairfax Financial Holdings.
As industrywide interest jumped, some big names were breaking ground themselves. Tudor Investment Corp, managed by Paul Tudor Jones, initiated the most valuable position in CenturyLink, Inc. (NYSE:CTL). Tudor Investment Corp had $3.8 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also made a $0.7 million investment in the stock during the quarter. The other funds with brand new CTL positions are Bruce Kovner’s Caxton Associates LP, Brandon Haley’s Holocene Advisors, and Steve Cohen’s Point72 Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to CenturyLink, Inc. (NYSE:CTL). These stocks are ABIOMED, Inc. (NASDAQ:ABMD), Varian Medical Systems, Inc. (NYSE:VAR), Vornado Realty Trust (NYSE:VNO), and Wynn Resorts, Limited (NASDAQ:WYNN). This group of stocks’ market valuations match CTL’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1212 million. That figure was $1096 million in CTL’s case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 30 bullish hedge fund positions. CenturyLink, Inc. (NYSE:CTL) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CTL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CTL investors were disappointed as the stock returned -10.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.