Were Hedge Funds Right About Verizon (VZ)?

In this article we will check out the progression of hedge fund sentiment towards Verizon Communications Inc. (NYSE:VZ) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Verizon Communications Inc. (NYSE:VZ) investors should be aware of an increase in hedge fund interest lately. Verizon Communications Inc. (NYSE:VZ) was in 67 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 68. Our calculations also showed that VZ isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Siegel of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 let’s review the recent hedge fund action regarding Verizon Communications Inc. (NYSE:VZ).

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

At the end of December, a total of 67 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VZ over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Berkshire Hathaway was the largest shareholder of Verizon Communications Inc. (NYSE:VZ), with a stake worth $8619.6 million reported as of the end of December. Trailing Berkshire Hathaway was D E Shaw, which amassed a stake valued at $388.8 million. AQR Capital Management, Two Sigma Advisors, and Adage Capital 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 Heathbridge Capital Management allocated the biggest weight to Verizon Communications Inc. (NYSE:VZ), around 9.1% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, setting aside 4.15 percent of its 13F equity portfolio to VZ.

Now, some big names have been driving this bullishness. Berkshire Hathaway, managed by Warren Buffett, assembled the biggest position in Verizon Communications Inc. (NYSE:VZ). Berkshire Hathaway had $8.6196 billion invested in the company at the end of the quarter. Nicholas Bagnall’s Te Ahumairangi Investment Management also initiated a $21.8 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Peter S. Stamos’s Stamos Capital, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Verizon Communications Inc. (NYSE:VZ) but similarly valued. We will take a look at Adobe Inc. (NASDAQ:ADBE), Comcast Corporation (NASDAQ:CMCSA), Netflix, Inc. (NASDAQ:NFLX), The Coca-Cola Company (NYSE:KO), NIKE, Inc. (NYSE:NKE), Pinduoduo Inc. (NASDAQ:PDD), and Toyota Motor Corporation (NYSE:TM). This group of stocks’ market caps resemble VZ’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 74.7 hedge funds with bullish positions and the average amount invested in these stocks was $11241 million. That figure was $10503 million in VZ’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. Verizon Communications Inc. (NYSE:VZ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VZ is 63.2. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately VZ wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); VZ investors were disappointed as the stock returned 1.5% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.