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Is L3Harris Technologies, Inc. (LHX) A Good Stock To Buy?

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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards L3Harris Technologies, Inc. (NYSE:LHX) to find out whether there were any major changes in hedge funds' views.

Is LHX a good stock to buy? L3Harris Technologies, Inc. (NYSE:LHX) shareholders have witnessed an increase in hedge fund sentiment lately. L3Harris Technologies, Inc. (NYSE:LHX) was in 41 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 51. There were 37 hedge funds in our database with LHX holdings at the end of December. Our calculations also showed that LHX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we leave no stone unturned when looking for 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, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. With all of this in mind we're going to take a peek at the key hedge fund action regarding L3Harris Technologies, Inc. (NYSE:LHX).

Do Hedge Funds Think LHX Is A Good Stock To Buy Now?

At the end of March, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LHX over the last 23 quarters. 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, GQG Partners, managed by Rajiv Jain, holds the biggest position in L3Harris Technologies, Inc. (NYSE:LHX). GQG Partners has a $406.2 million position in the stock, comprising 1.5% of its 13F portfolio. Coming in second is Matthew Stadelman of Diamond Hill Capital, with a $248.1 million position; 1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Donald Yacktman's Yacktman Asset Management, David Cohen and Harold Levy's Iridian Asset Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to L3Harris Technologies, Inc. (NYSE:LHX), around 5.54% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, setting aside 4.81 percent of its 13F equity portfolio to LHX.

Now, some big names have jumped into L3Harris Technologies, Inc. (NYSE:LHX) headfirst. GQG Partners, managed by Rajiv Jain, assembled the largest position in L3Harris Technologies, Inc. (NYSE:LHX). GQG Partners had $406.2 million invested in the company at the end of the quarter. Donald Yacktman's Yacktman Asset Management also made a $137.7 million investment in the stock during the quarter. The other funds with brand new LHX positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Dmitry Balyasny's Balyasny Asset Management, and John Osterweis's Osterweis Capital Management.

Let's also examine hedge fund activity in other stocks similar to L3Harris Technologies, Inc. (NYSE:LHX). These stocks are The Bank of New York Mellon Corporation (NYSE:BK), Cognizant Technology Solutions Corp (NASDAQ:CTSH), DuPont de Nemours Inc (NYSE:DD), Lloyds Banking Group PLC (NYSE:LYG), IHS Markit Ltd. (NYSE:INFO), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), and BCE Inc. (NYSE:BCE). All of these stocks' market caps resemble LHX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BK,49,4769692,2 CTSH,33,3339212,-13 DD,49,1720375,-11 LYG,5,14096,0 INFO,54,4093725,-5 CRWD,77,5257998,-15 BCE,10,121896,-3 Average,39.6,2759571,-6.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.6 hedge funds with bullish positions and the average amount invested in these stocks was $2760 million. That figure was $1399 million in LHX's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. L3Harris Technologies, Inc. (NYSE:LHX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LHX is 58.1. 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on LHX, though not to the same extent, as the stock returned 8.5% since Q1 (through June 18th) and outperformed the market as well.

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