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How Did Leidos Holdings Inc (LDOS) Compare Against Top Hedge Fund Stocks in 2019?

Reymerlyn Martin

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Leidos Holdings Inc (NYSE:LDOS) and compare its performance against hedge funds' favorite stocks.

Leidos Holdings Inc (NYSE:LDOS) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. LDOS was in 24 hedge funds' portfolios at the end of September. There were 23 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 Q3 rankings and see the video at the end of this article for Q2 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

[caption id="attachment_745225" align="aligncenter" width="1613"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to go over the key hedge fund action surrounding Leidos Holdings Inc (NYSE:LDOS).

How are hedge funds trading Leidos Holdings Inc (NYSE:LDOS)?

At Q3's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LDOS over the last 17 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.

More specifically, Southpoint Capital Advisors was the largest shareholder of Leidos Holdings Inc (NYSE:LDOS), with a stake worth $146 million reported as of the end of September. Trailing Southpoint Capital Advisors was GLG Partners, which amassed a stake valued at $63.8 million. Two Sigma Advisors, Alyeska Investment Group, and Samlyn Capital 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 Southpoint Capital Advisors allocated the biggest weight to Leidos Holdings Inc (NYSE:LDOS), around 5.52% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 1.92 percent of its 13F equity portfolio to LDOS.

As aggregate interest increased, key money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, initiated the most valuable position in Leidos Holdings Inc (NYSE:LDOS). Alyeska Investment Group had $44.1 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $1.5 million investment in the stock during the quarter. The following funds were also among the new LDOS investors: Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, Matthew Hulsizer's PEAK6 Capital Management, and Benjamin A. Smith's Laurion Capital Management.

Let's now review hedge fund activity in other stocks similar to Leidos Holdings Inc (NYSE:LDOS). We will take a look at Duke Realty Corporation (NYSE:DRE), Steris Plc (NYSE:STE), Paycom Software Inc (NYSE:PAYC), and Liberty Global Plc (NASDAQ:LBTYK). This group of stocks' market values are similar to LDOS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DRE,16,170834,-7 STE,28,388702,6 PAYC,31,413981,7 LBTYK,38,3404866,4 Average,28.25,1094596,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1095 million. That figure was $439 million in LDOS's case. Liberty Global Plc (NASDAQ:LBTYK) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Leidos Holdings Inc (NYSE:LDOS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on LDOS as the stock returned 88.8% in 2019 and outclassed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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