Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Lowe's Companies, Inc. (NYSE:LOW) was in 56 hedge funds' portfolios at the end of March. LOW investors should pay attention to an increase in activity from the world's largest hedge funds lately. There were 53 hedge funds in our database with LOW positions at the end of the previous quarter. Our calculations also showed that LOW isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to view the latest hedge fund action encompassing Lowe's Companies, Inc. (NYSE:LOW).
How are hedge funds trading Lowe's Companies, Inc. (NYSE:LOW)?
At Q1's end, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in LOW over the last 15 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Pershing Square was the largest shareholder of Lowe's Companies, Inc. (NYSE:LOW), with a stake worth $1019.7 million reported as of the end of March. Trailing Pershing Square was D E Shaw, which amassed a stake valued at $954.8 million. Citadel Investment Group, Renaissance Technologies, and OZ Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were breaking ground themselves. Point State Capital, managed by Zach Schreiber, initiated the most outsized position in Lowe's Companies, Inc. (NYSE:LOW). Point State Capital had $155 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $92.9 million investment in the stock during the quarter. The other funds with new positions in the stock are John Khoury's Long Pond Capital, Aaron Cowen's Suvretta Capital Management, and Robert Pohly's Samlyn Capital.
Let's also examine hedge fund activity in other stocks similar to Lowe's Companies, Inc. (NYSE:LOW). These stocks are General Electric Company (NYSE:GE), American Tower Corporation (REIT) (NYSE:AMT), Itau Unibanco Holding SA (NYSE:ITUB), and Lockheed Martin Corporation (NYSE:LMT). All of these stocks' market caps match LOW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GE,54,3675745,-5 AMT,39,3021510,-2 ITUB,21,1086598,3 LMT,35,1219528,-7 Average,37.25,2250845,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $2251 million. That figure was $5257 million in LOW's case. General Electric Company (NYSE:GE) is the most popular stock in this table. On the other hand Itau Unibanco Holding SA (NYSE:ITUB) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Lowe's Companies, Inc. (NYSE:LOW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LOW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LOW were disappointed as the stock returned -13.9% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.