Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Lumentum Holdings Inc (NASDAQ:LITE).
Is LITE a good stock to buy now? Lumentum Holdings Inc (NASDAQ:LITE) has seen a decrease in hedge fund sentiment recently. Lumentum Holdings Inc (NASDAQ:LITE) was in 40 hedge funds’ portfolios at the end of September. The all time high for this statistic is 42. Our calculations also showed that LITE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most shareholders, hedge funds are assumed to be worthless, old investment vehicles of the past. While there are over 8000 funds with their doors open at the moment, We choose to focus on the masters of this group, approximately 850 funds. It is estimated that this group of investors shepherd the majority of the smart money’s total asset base, and by tailing their best picks, Insider Monkey has spotted several investment strategies that have historically outstripped the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding Lumentum Holdings Inc (NASDAQ:LITE).
Do Hedge Funds Think LITE Is A Good Stock To Buy Now?
At Q3’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in LITE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in Lumentum Holdings Inc (NASDAQ:LITE), which was worth $68 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $61.1 million worth of shares. Citadel Investment Group, Holocene Advisors, and Millennium 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 Shelter Haven Capital Management allocated the biggest weight to Lumentum Holdings Inc (NASDAQ:LITE), around 12.57% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, setting aside 6.16 percent of its 13F equity portfolio to LITE.
Judging by the fact that Lumentum Holdings Inc (NASDAQ:LITE) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there were a few money managers who were dropping their entire stakes heading into Q4. At the top of the heap, Brian Ashford-Russell and Tim Woolley’s Polar Capital cut the biggest stake of the 750 funds monitored by Insider Monkey, totaling an estimated $41.6 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund dropped about $14.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Lumentum Holdings Inc (NASDAQ:LITE). These stocks are Rexford Industrial Realty Inc (NYSE:REXR), TopBuild Corp (NYSE:BLD), BigCommerce Holdings, Inc. (NASDAQ:BIGC), TIM Participacoes SA (NYSE:TSU), Flex Ltd. (NASDAQ:FLEX), Santander Consumer USA Holdings Inc (NYSE:SC), and AGCO Corporation (NYSE:AGCO). All of these stocks’ market caps are closest to LITE’s market cap.
|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 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $328 million. That figure was $502 million in LITE’s case. AGCO Corporation (NYSE:AGCO) is the most popular stock in this table. On the other hand Rexford Industrial Realty Inc (NYSE:REXR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Lumentum Holdings Inc (NASDAQ:LITE) is more popular among hedge funds. Our overall hedge fund sentiment score for LITE is 81.6. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on LITE as the stock returned 17.1% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.