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Is LI Stock A Buy or Sell?

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Asma UL Husna
·6 min read
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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Li Auto Inc. (NASDAQ:LI).

Is LI stock a buy? Li Auto Inc. (NASDAQ:LI) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. Li Auto Inc. (NASDAQ:LI) was in 31 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 26 hedge funds in our database with LI holdings at the end of September. Our calculations also showed that LI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Keeping this in mind we're going to take a look at the recent hedge fund action encompassing Li Auto Inc. (NASDAQ:LI).

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

At Q4's end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the third quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in LI a year ago. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jericho Capital Asset Management, managed by Josh Resnick, holds the biggest position in Li Auto Inc. (NASDAQ:LI). Jericho Capital Asset Management has a $108.1 million position in the stock, comprising 2.5% of its 13F portfolio. Coming in second is D E Shaw, managed by D. E. Shaw, which holds a $60.6 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions contain Israel Englander's Millennium Management, Jonathan Barrett and Paul Segal's Luminus Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Li Auto Inc. (NASDAQ:LI), around 12.46% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, setting aside 5.71 percent of its 13F equity portfolio to LI.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Luminus Management, managed by Jonathan Barrett and Paul Segal, established the largest position in Li Auto Inc. (NASDAQ:LI). Luminus Management had $53.5 million invested in the company at the end of the quarter. Simon Sadler's Segantii Capital also made a $40.1 million investment in the stock during the quarter. The other funds with brand new LI positions are Leung Chi Kit's Kadensa Capital, Jay Chen's Himension Capital, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's now take a look at hedge fund activity in other stocks similar to Li Auto Inc. (NASDAQ:LI). These stocks are StoneCo Ltd. (NASDAQ:STNE), Best Buy Co., Inc. (NYSE:BBY), State Street Corporation (NYSE:STT), Delta Air Lines, Inc. (NYSE:DAL), Suncor Energy Inc. (NYSE:SU), TELUS Corporation (NYSE:TU), and McCormick & Company, Incorporated (NYSE:MKC). This group of stocks' market caps are closest to LI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STNE,47,3628999,9 BBY,38,975177,-2 STT,31,502936,-3 DAL,58,1058704,15 SU,25,686120,3 TU,14,183122,2 MKC,36,1880232,-1 Average,35.6,1273613,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1274 million. That figure was $498 million in LI's case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 14 bullish hedge fund positions. Li Auto Inc. (NASDAQ:LI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LI is 59.3. 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. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately LI wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); LI investors were disappointed as the stock returned -24.5% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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