Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Lear Corporation (NYSE:LEA) changed recently and compare against peers like Cable One Inc (NYSE:CABO), Jones Lang LaSalle Inc (NYSE:JLL), Old Republic International Corporation (NYSE:ORI), and Hubbell Incorporated (NYSE:HUBB).
Lear Corporation (NYSE:LEA) investors should be aware of an increase in hedge fund interest recently. LEA was in 33 hedge funds' portfolios at the end of September. There were 31 hedge funds in our database with LEA holdings at the end of the previous quarter. Our calculations also showed that LEA 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.
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_735536" align="aligncenter" width="473"] Sander Gerber of Hudson Bay Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the fresh hedge fund action encompassing Lear Corporation (NYSE:LEA).
How have hedgies been trading Lear Corporation (NYSE:LEA)?
At Q3's end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LEA over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lear Corporation (NYSE:LEA) was held by Pzena Investment Management, which reported holding $494.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $106.4 million position. Other investors bullish on the company included Balyasny Asset Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Spitfire Capital allocated the biggest weight to Lear Corporation (NYSE:LEA), around 4.77% of its portfolio. Pzena Investment Management is also relatively very bullish on the stock, setting aside 2.69 percent of its 13F equity portfolio to LEA.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable call position in Lear Corporation (NYSE:LEA). Point72 Asset Management had $23.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $10.4 million investment in the stock during the quarter. The other funds with brand new LEA positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Sander Gerber's Hudson Bay Capital Management, and Benjamin A. Smith's Laurion Capital Management.
Let's go over hedge fund activity in other stocks similar to Lear Corporation (NYSE:LEA). We will take a look at Cable One Inc (NYSE:CABO), Jones Lang LaSalle Inc (NYSE:JLL), Old Republic International Corporation (NYSE:ORI), and Hubbell Incorporated (NYSE:HUBB). This group of stocks' market valuations are closest to LEA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CABO,13,495048,-2 JLL,26,1081252,3 ORI,17,417709,-4 HUBB,23,383354,5 Average,19.75,594341,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $594 million. That figure was $818 million in LEA's case. Jones Lang LaSalle Inc (NYSE:JLL) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Lear Corporation (NYSE:LEA) is more popular among hedge funds. 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 LEA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LEA were disappointed as the stock returned 2% 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.