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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards La-Z-Boy Incorporated (NYSE:LZB).
La-Z-Boy Incorporated (NYSE:LZB) has seen an increase in activity from the world's largest hedge funds of late. La-Z-Boy Incorporated (NYSE:LZB) was in 24 hedge funds' portfolios at the end of March. The all time high for this statistic is 25. Our calculations also showed that LZB isn't among the 30 most popular stocks among hedge funds (click for Q1 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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Mario Gabelli of GAMCO Investors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a peek at the latest hedge fund action encompassing La-Z-Boy Incorporated (NYSE:LZB).
Do Hedge Funds Think LZB Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 85% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in LZB a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in La-Z-Boy Incorporated (NYSE:LZB) was held by Arrowstreet Capital, which reported holding $32.3 million worth of stock at the end of December. It was followed by Royce & Associates with a $17 million position. Other investors bullish on the company included Millennium Management, GAMCO Investors, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position TwinBeech Capital allocated the biggest weight to La-Z-Boy Incorporated (NYSE:LZB), around 0.13% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.11 percent of its 13F equity portfolio to LZB.
As aggregate interest increased, some big names were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in La-Z-Boy Incorporated (NYSE:LZB). Balyasny Asset Management had $8.7 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $4.2 million investment in the stock during the quarter. The following funds were also among the new LZB investors: Greg Eisner's Engineers Gate Manager, Lee Ainslie's Maverick Capital, and Brandon Haley's Holocene Advisors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as La-Z-Boy Incorporated (NYSE:LZB) but similarly valued. These stocks are Columbia Property Trust Inc (NYSE:CXP), Goldman Sachs BDC, Inc. (NYSE:GSBD), American Assets Trust, Inc (NYSE:AAT), Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY), InterDigital, Inc. (NASDAQ:IDCC), Service Properties Trust (NASDAQ:SVC), and Infinera Corp. (NASDAQ:INFN). This group of stocks' market valuations are closest to LZB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CXP,12,62630,-1 GSBD,5,5208,3 AAT,12,19323,-2 SNCY,20,173113,20 IDCC,15,273221,-3 SVC,18,153253,-2 INFN,20,372720,-1 Average,14.6,151353,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $111 million in LZB's case. Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) is the most popular stock in this table. On the other hand Goldman Sachs BDC, Inc. (NYSE:GSBD) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks La-Z-Boy Incorporated (NYSE:LZB) is more popular among hedge funds. Our overall hedge fund sentiment score for LZB is 88.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Unfortunately LZB wasn't nearly as popular as these 5 stocks and hedge funds that were betting on LZB were disappointed as the stock returned -20.6% since the end of the first quarter (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.