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Should You Buy Lancaster Colony Corporation (LANC)?

Al Green

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in October due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 30 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 6.7% through November 15th whereas the S&P 500 Index ETF gained only 2.6% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Lancaster Colony Corporation (NASDAQ:LANC) from the perspective of those elite funds.

Lancaster Colony Corporation (NASDAQ:LANC) shareholders have witnessed an increase in hedge fund interest recently. LANC was in 16 hedge funds' portfolios at the end of the third quarter of 2018. There were 12 hedge funds in our database with LANC positions at the end of the previous quarter. Our calculations also showed that LANC isn't among the 30 most popular stocks among hedge funds.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

Chuck Royce

Let's go over the latest hedge fund action regarding Lancaster Colony Corporation (NASDAQ:LANC).

What does the smart money think about Lancaster Colony Corporation (NASDAQ:LANC)?

At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in LANC heading into this year. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds LANC Positions

The largest stake in Lancaster Colony Corporation (NASDAQ:LANC) was held by Renaissance Technologies, which reported holding $107.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $60.3 million position. Other investors bullish on the company included Royce & Associates, AQR Capital Management, and GLG Partners.

As one would reasonably expect, key hedge funds have jumped into Lancaster Colony Corporation (NASDAQ:LANC) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Lancaster Colony Corporation (NASDAQ:LANC). Arrowstreet Capital had $6.7 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $1.4 million investment in the stock during the quarter. The other funds with brand new LANC positions are Matthew Hulsizer's PEAK6 Capital Management, Matthew Hulsizer's PEAK6 Capital Management, and Frederick DiSanto's Ancora Advisors.

Let's also examine hedge fund activity in other stocks similar to Lancaster Colony Corporation (NASDAQ:LANC). These stocks are Valvoline Inc. (NYSE:VVV), MSA Safety Incorporated (NYSE:MSA), J2 Global Inc (NASDAQ:JCOM), and Eagle Materials, Inc. (NYSE:EXP). All of these stocks' market caps resemble LANC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VVV,15,313449,3 MSA,10,65875,-3 JCOM,17,207951,4 EXP,32,816135,6 Average,18.5,350853,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $230 million in LANC's case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Mine Safety Appliances (NYSE:MSA) is the least popular one with only 10 bullish hedge fund positions. Lancaster Colony Corporation (NASDAQ:LANC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard EXP might be a better candidate to consider a long position.

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

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