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Did Hedge Funds Make The Right Call On Leidos Holdings Inc (LDOS) ?

Asma UL Husna

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Leidos Holdings Inc (NYSE:LDOS) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Leidos Holdings Inc (NYSE:LDOS) was in 30 hedge funds' portfolios at the end of March. LDOS has experienced an increase in enthusiasm from smart money of late. There were 27 hedge funds in our database with LDOS positions at the end of the previous quarter. Our calculations also showed that LDOS isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

According to most stock holders, hedge funds are viewed as underperforming, outdated financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open today, Our experts choose to focus on the elite of this club, about 850 funds. It is estimated that this group of investors administer bulk of the hedge fund industry's total capital, and by following their best picks, Insider Monkey has spotted numerous investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_26255" align="aligncenter" width="392"] Louis Navellier of Navellier & Associates[/caption]

NAVELLIER & ASSOCIATES
NAVELLIER & ASSOCIATES

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let's check out the latest hedge fund action encompassing Leidos Holdings Inc (NYSE:LDOS).

What does smart money think about Leidos Holdings Inc (NYSE:LDOS)?

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in LDOS over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Leidos Holdings Inc (NYSE:LDOS) was held by Southpoint Capital Advisors, which reported holding $257 million worth of stock at the end of September. It was followed by Samlyn Capital with a $71.6 million position. Other investors bullish on the company included Renaissance Technologies, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Southpoint Capital Advisors allocated the biggest weight to Leidos Holdings Inc (NYSE:LDOS), around 7.51% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, designating 1.99 percent of its 13F equity portfolio to LDOS.

As industrywide interest jumped, specific money managers were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Leidos Holdings Inc (NYSE:LDOS). Point72 Asset Management had $15.7 million invested in the company at the end of the quarter. Mark Coe's Intrinsic Edge Capital also initiated a $9.4 million position during the quarter. The other funds with new positions in the stock are David Rosen's Rubric Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Louis Navellier's Navellier & Associates.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Leidos Holdings Inc (NYSE:LDOS) but similarly valued. We will take a look at Nomura Holdings, Inc. (NYSE:NMR), Markel Corporation (NYSE:MKL), Seagate Technology plc (NASDAQ:STX), and Galapagos NV (NASDAQ:GLPG). This group of stocks' market values are closest to LDOS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NMR,5,18048,0 MKL,32,982316,-5 STX,32,2205943,-3 GLPG,15,151547,1 Average,21,839464,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $839 million. That figure was $571 million in LDOS's case. Markel Corporation (NYSE:MKL) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Leidos Holdings Inc (NYSE:LDOS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately LDOS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on LDOS were disappointed as the stock returned 2.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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