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Is Lennox International Inc. (LII) A Good Stock To Buy?

Reymerlyn Martin

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Lennox International Inc. (NYSE:LII) was in 21 hedge funds' portfolios at the end of June. LII has seen an increase in enthusiasm from smart money of late. There were 19 hedge funds in our database with LII positions at the end of the previous quarter. Our calculations also showed that LII isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's go over the latest hedge fund action regarding Lennox International Inc. (NYSE:LII).

What have hedge funds been doing with Lennox International Inc. (NYSE:LII)?

At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LII over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

LII_oct2019

More specifically, Impax Asset Management was the largest shareholder of Lennox International Inc. (NYSE:LII), with a stake worth $55.8 million reported as of the end of March. Trailing Impax Asset Management was Bishop Rock Capital, which amassed a stake valued at $9.7 million. McKinley Capital Management, Renaissance Technologies, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, established the biggest position in Lennox International Inc. (NYSE:LII). Scopus Asset Management had $6.5 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $1.5 million position during the quarter. The following funds were also among the new LII investors: Brandon Haley's Holocene Advisors, Bruce Kovner's Caxton Associates LP, and Steve Cohen's Point72 Asset Management.

Let's now review hedge fund activity in other stocks similar to Lennox International Inc. (NYSE:LII). These stocks are E*TRADE Financial Corporation (NASDAQ:ETFC), Seattle Genetics, Inc. (NASDAQ:SGEN), Equity Lifestyle Properties, Inc. (NYSE:ELS), and Marathon Oil Corporation (NYSE:MRO). This group of stocks' market valuations are similar to LII's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ETFC,43,1180517,0 SGEN,17,3788958,-2 ELS,18,553591,3 MRO,32,494413,-5 Average,27.5,1504370,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1504 million. That figure was $120 million in LII's case. E*TRADE Financial Corporation (NASDAQ:ETFC) is the most popular stock in this table. On the other hand Seattle Genetics, Inc. (NASDAQ:SGEN) is the least popular one with only 17 bullish hedge fund positions. Lennox International Inc. (NYSE:LII) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LII wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LII investors were disappointed as the stock returned -11.4% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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