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Is LHX A Good Stock To Buy Now?

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·6 min read
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In this article we will take a look at whether hedge funds think L3Harris Technologies, Inc. (NYSE:LHX) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is LHX a good stock to buy now? L3Harris Technologies, Inc. (NYSE:LHX) was in 42 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 51. LHX shareholders have witnessed a decrease in hedge fund sentiment lately. There were 50 hedge funds in our database with LHX holdings at the end of June. Our calculations also showed that LHX 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners
Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy 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 go over the recent hedge fund action surrounding L3Harris Technologies, Inc. (NYSE:LHX).

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

At Q3's end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. On the other hand, there were a total of 51 hedge funds with a bullish position in LHX a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in L3Harris Technologies, Inc. (NYSE:LHX), which was worth $174 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $122.7 million worth of shares. Arrowstreet Capital, Citadel Investment Group, and D E Shaw were 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 SAYA Management allocated the biggest weight to L3Harris Technologies, Inc. (NYSE:LHX), around 11.92% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, dishing out 4.36 percent of its 13F equity portfolio to LHX.

Because L3Harris Technologies, Inc. (NYSE:LHX) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few hedgies that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Aaron Cowen's Suvretta Capital Management sold off the largest investment of all the hedgies monitored by Insider Monkey, totaling about $63.8 million in stock, and Robert Pohly's Samlyn Capital was right behind this move, as the fund said goodbye to about $14.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as L3Harris Technologies, Inc. (NYSE:LHX) but similarly valued. These stocks are The Kraft Heinz Company (NASDAQ:KHC), Constellation Brands, Inc. (NYSE:STZ), eBay Inc (NASDAQ:EBAY), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Xcel Energy Inc (NASDAQ:XEL), The Blackstone Group Inc. (NYSE:BX), and SBA Communications Corporation (NASDAQ:SBAC). All of these stocks' market caps are closest to LHX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KHC,39,10114221,4 STZ,53,2196149,0 EBAY,50,4887490,-8 ERIC,23,302159,0 XEL,22,355752,-1 BX,49,1296447,2 SBAC,43,1761058,-14 Average,39.9,2987611,-2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $2988 million. That figure was $1149 million in LHX's case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 22 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 54. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on LHX as the stock returned 11.9% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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