Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Lumber Liquidators Holdings Inc (NYSE:LL) investors should be aware of a decrease in hedge fund interest lately. Our calculations also showed that LL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most investors, hedge funds are viewed as unimportant, old financial tools of yesteryear. While there are greater than 8000 funds in operation today, Our experts look at the masters of this club, approximately 750 funds. It is estimated that this group of investors preside over most of the hedge fund industry's total asset base, and by shadowing their highest performing picks, Insider Monkey has found various investment strategies that have historically outrun the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]
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 fresh hedge fund action surrounding Lumber Liquidators Holdings Inc (NYSE:LL).
What does smart money think about Lumber Liquidators Holdings Inc (NYSE:LL)?
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in LL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Chuck Royce's Royce & Associates has the largest position in Lumber Liquidators Holdings Inc (NYSE:LL), worth close to $10.8 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $5.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of David E. Shaw's D E Shaw, Sculptor Capital and Paul Marshall and Ian Wace's Marshall Wace. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Lumber Liquidators Holdings Inc (NYSE:LL), around 0.1% of its 13F portfolio. Sculptor Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to LL.
Since Lumber Liquidators Holdings Inc (NYSE:LL) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedgies who were dropping their positions entirely heading into Q4. Intriguingly, Gary Claar's Claar Advisors cut the biggest position of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $2.3 million in stock, and C. Jonathan Gattman's Cloverdale Capital Management was right behind this move, as the fund dumped about $1.1 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Lumber Liquidators Holdings Inc (NYSE:LL) but similarly valued. These stocks are J.C. Penney Company, Inc. (NYSE:JCP), Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), Timkensteel Corp (NYSE:TMST), and Sorrentto Therapeutics Inc (NASDAQ:SRNE). This group of stocks' market caps match LL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JCP,18,27425,6 CLMT,5,8800,0 TMST,14,38476,-2 SRNE,3,876,-2 Average,10,18894,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $20 million in LL's case. J.C. Penney Company, Inc. (NYSE:JCP) is the most popular stock in this table. On the other hand Sorrentto Therapeutics Inc (NASDAQ:SRNE) is the least popular one with only 3 bullish hedge fund positions. Lumber Liquidators Holdings Inc (NYSE:LL) 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. 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 LL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LL investors were disappointed as the stock returned -9.7% 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.