We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like LSC Communications, Inc. (NYSE:LKSD).
Is LSC Communications, Inc. (NYSE:LKSD) a buy right now? Investors who are in the know are getting more bullish. The number of bullish hedge fund bets improved by 1 recently. Our calculations also showed that LKSD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). LKSD was in 10 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with LKSD holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Platt of BlueCrest Capital Mgmt.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the latest hedge fund action encompassing LSC Communications, Inc. (NYSE:LKSD).
What does smart money think about LSC Communications, Inc. (NYSE:LKSD)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in LKSD a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in LSC Communications, Inc. (NYSE:LKSD) was held by AQR Capital Management, which reported holding $3.3 million worth of stock at the end of September. It was followed by Aristeia Capital with a $1 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Aristeia Capital allocated the biggest weight to LSC Communications, Inc. (NYSE:LKSD), around 0.06% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to LKSD.
As industrywide interest jumped, key hedge funds have been driving this bullishness. AQR Capital Management, managed by Cliff Asness, initiated the most outsized position in LSC Communications, Inc. (NYSE:LKSD). AQR Capital Management had $3.3 million invested in the company at the end of the quarter. Robert Henry Lynch’s Aristeia Capital also made a $1 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s check out hedge fund activity in other stocks similar to LSC Communications, Inc. (NYSE:LKSD). We will take a look at Friedman Industries, Incorporated (NYSE:FRD), Gevo, Inc. (NASDAQ:GEVO), MTBC, Inc. (NASDAQ:MTBC), and Tantech Holdings Ltd. (NASDAQ:TANH). This group of stocks’ market values match LKSD’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRD,1,3206,0 GEVO,1,1787,0 MTBC,2,2250,-1 TANH,2,794,0 Average,1.5,2009,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 1.5 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $7 million in LKSD’s case. MTBC, Inc. (NASDAQ:MTBC) is the most popular stock in this table. On the other hand Friedman Industries, Incorporated (NYSE:FRD) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks LSC Communications, Inc. (NYSE:LKSD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LKSD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LKSD were disappointed as the stock returned -68.7% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.