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Did Hedge Funds Drop The Ball On L-3 Technologies, Inc. (LLL) ?

Abigail Fisher

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

L-3 Technologies, Inc. (NYSE:LLL) shareholders have witnessed a decrease in support from the world's most elite money managers lately. Our calculations also showed that LLL isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

We're going to view the new hedge fund action regarding L-3 Technologies, Inc. (NYSE:LLL).

What have hedge funds been doing with L-3 Technologies, Inc. (NYSE:LLL)?

At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LLL over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

LLL_mar2019

The largest stake in L-3 Technologies, Inc. (NYSE:LLL) was held by Ashler Capital, which reported holding $164.7 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $146.6 million position. Other investors bullish on the company included Holocene Advisors, Alpine Associates, and Alyeska Investment Group.

Seeing as L-3 Technologies, Inc. (NYSE:LLL) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedgies who sold off their full holdings last quarter. Intriguingly, Steve Cohen's Point72 Asset Management dumped the biggest position of the 700 funds monitored by Insider Monkey, totaling about $38.8 million in stock, and Alexander Mitchell's Scopus Asset Management was right behind this move, as the fund dropped about $36.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as L-3 Technologies, Inc. (NYSE:LLL) but similarly valued. These stocks are CBRE Group, Inc. (NYSE:CBRE), Shopify Inc (NYSE:SHOP), Arthur J. Gallagher & Co. (NYSE:AJG), and Incyte Corporation (NASDAQ:INCY). This group of stocks' market values are closest to LLL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBRE,34,1380782,5 SHOP,29,1050550,1 AJG,22,278329,-4 INCY,34,3042867,-3 Average,29.75,1438132,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1438 million. That figure was $799 million in LLL's case. CBRE Group, Inc. (NYSE:CBRE) is the most popular stock in this table. On the other hand Arthur J. Gallagher & Co. (NYSE:AJG) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks L-3 Technologies, Inc. (NYSE:LLL) is even less popular than AJG. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. A handful of hedge funds were also right about betting on LLL as the stock returned 19.7% and outperformed the market as well.

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

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