Hedge Funds Are Dumping Lumen Technologies, Inc. (LUMN)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Lumen Technologies, Inc. (NYSE:LUMN).

Is Lumen Technologies, Inc. (NYSE:LUMN) a bargain? Prominent investors were in a bearish mood. The number of long hedge fund positions were trimmed by 8 in recent months. Lumen Technologies, Inc. (NYSE:LUMN) was in 25 hedge funds’ portfolios at the end of the third quarter of 2021. 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).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind let’s take a glance at the new hedge fund action encompassing Lumen Technologies, Inc. (NYSE:LUMN).

Gavin Saitowitz of Prelude Capital

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

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the second quarter of 2021. On the other hand, there were a total of 31 hedge funds with a bullish position in LUMN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Mason Hawkins’s Southeastern Asset Management has the largest position in Lumen Technologies, Inc. (NYSE:LUMN), worth close to $813.9 million, corresponding to 15.4% of its total 13F portfolio. Coming in second is D E Shaw, led by D. E. Shaw, holding a $35.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions comprise Noam Gottesman’s GLG Partners, 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 15.45% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 1.98 percent of its 13F equity portfolio to LUMN.

Because Lumen Technologies, Inc. (NYSE:LUMN) has faced falling interest from hedge fund managers, it’s easy to see that there were a few hedgies who were dropping their positions entirely in the third quarter. It’s worth mentioning that Prem Watsa’s Fairfax Financial Holdings said goodbye to the largest position of the “upper crust” of funds followed by Insider Monkey, worth about $19.4 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund dumped about $6.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 8 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Lumen Technologies, Inc. (NYSE:LUMN) but similarly valued. These stocks are Eastman Chemical Company (NYSE:EMN), Elastic N.V. (NYSE:ESTC), Leidos Holdings Inc (NYSE:LDOS), The Mosaic Company (NYSE:MOS), Vail Resorts, Inc. (NYSE:MTN), Suzano S.A. (NYSE:SUZ), and GameStop Corp. (NYSE:GME). This group of stocks’ market valuations are closest to LUMN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $733 million. That figure was $941 million in LUMN’s case. Elastic N.V. (NYSE:ESTC) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 6 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 33.7. 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 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately LUMN wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LUMN investors were disappointed as the stock returned -0.8% since the end of September (through 12/9) 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.