Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Lumen Technologies, Inc. (NYSE:LUMN) changed recently.
Is LUMN a good stock to buy now? The best stock pickers were buying. The number of long hedge fund positions moved up by 1 in recent months. Lumen Technologies, Inc. (NYSE:LUMN) was in 31 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. Our calculations also showed that LUMN 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we’re going to review the key hedge fund action encompassing Lumen Technologies, Inc. (NYSE:LUMN).
Do Hedge Funds Think LUMN Is A Good Stock To Buy Now?
At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. By comparison, 32 hedge funds held shares or bullish call options in LUMN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Mason Hawkins’s Southeastern Asset Management has the number one position in Lumen Technologies, Inc. (NYSE:LUMN), worth close to $635.1 million, amounting to 16.4% of its total 13F portfolio. On Southeastern Asset Management’s heels is Fairfax Financial Holdings, managed by Prem Watsa, which holds a $23.8 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Southeastern Asset Management allocated the biggest weight to Lumen Technologies, Inc. (NYSE:LUMN), around 16.36% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, setting aside 2.44 percent of its 13F equity portfolio to LUMN.
As one would reasonably expect, key money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most valuable position in Lumen Technologies, Inc. (NYSE:LUMN). Balyasny Asset Management had $8.6 million invested in the company at the end of the quarter. Michael Burry’s Scion Asset Management also made a $8.1 million investment in the stock during the quarter. The following funds were also among the new LUMN investors: Philippe Laffont’s Coatue Management, Matthew Hulsizer’s PEAK6 Capital Management, and Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Lumen Technologies, Inc. (NYSE:LUMN) but similarly valued. We will take a look at W.R. Berkley Corporation (NYSE:WRB), Gold Fields Limited (NYSE:GFI), Molina Healthcare, Inc. (NYSE:MOH), Citizens Financial Group Inc (NYSE:CFG), The Boston Beer Company Inc (NYSE:SAM), RPM International Inc. (NYSE:RPM), and MGM Resorts International (NYSE:MGM). This group of stocks’ market valuations are closest to LUMN’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 31 hedge funds with bullish positions and the average amount invested in these stocks was $764 million. That figure was $763 million in LUMN’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Gold Fields Limited (NYSE:GFI) is the least popular one with only 15 bullish hedge fund positions. Lumen Technologies, Inc. (NYSE:LUMN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LUMN is 60. 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 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 gained 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately LUMN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LUMN investors were disappointed as the stock returned 3.1% since the end of September (through 12/18) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.