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Here is What Hedge Funds Think About Lithium Americas Corp. (LAC)

Abigail Fisher
·6 min read

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Lithium Americas Corp. (NYSE:LAC) changed recently.

Lithium Americas Corp. (NYSE:LAC) was in 3 hedge funds' portfolios at the end of September. The all time high for this statistics is 4. LAC shareholders have witnessed an increase in hedge fund interest of late. There were 1 hedge funds in our database with LAC positions at the end of the second quarter. Our calculations also showed that LAC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website. Now let's take a glance at the key hedge fund action encompassing Lithium Americas Corp. (NYSE:LAC).

What have hedge funds been doing with Lithium Americas Corp. (NYSE:LAC)?

At third quarter's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 200% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in LAC a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Lithium Americas Corp. (NYSE:LAC), which was worth $1.8 million at the end of the third quarter. On the second spot was ExodusPoint Capital which amassed $1.3 million worth of shares. PEAK6 Capital Management was 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 ExodusPoint Capital allocated the biggest weight to Lithium Americas Corp. (NYSE:LAC), around 0.03% of its 13F portfolio. PEAK6 Capital Management is also relatively very bullish on the stock, designating 0.0031 percent of its 13F equity portfolio to LAC.

Now, some big names have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, initiated the largest position in Lithium Americas Corp. (NYSE:LAC). ExodusPoint Capital had $1.3 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $0.8 million position during the quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lithium Americas Corp. (NYSE:LAC) but similarly valued. We will take a look at The ODP Corporation (NASDAQ:ODP), TPI Composites, Inc. (NASDAQ:TPIC), Covanta Holding Corporation (NYSE:CVA), Malibu Boats Inc (NASDAQ:MBUU), Ferro Corporation (NYSE:FOE), Comstock Resources Inc (NYSE:CRK), and Franchise Group, Inc. (NASDAQ:FRG). This group of stocks' market values resemble LAC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ODP,18,182264,0 TPIC,20,103800,7 CVA,23,79339,2 MBUU,19,119790,0 FOE,15,145226,-3 CRK,24,123591,7 FRG,12,61800,-4 Average,18.7,116544,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $3 million in LAC's case. Comstock Resources Inc (NYSE:CRK) is the most popular stock in this table. On the other hand Franchise Group, Inc. (NASDAQ:FRG) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Lithium Americas Corp. (NYSE:LAC) is even less popular than FRG. Our overall hedge fund sentiment score for LAC is 29.5. 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. Hedge funds dodged a bullet by taking a bearish stance towards LAC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd but managed to beat the market again by 15.4 percentage points. Unfortunately LAC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LAC investors were disappointed as the stock returned -8.7% since the end of the third quarter (through 11/23) 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 most of these stocks already outperformed the market so far in 2020.

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

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