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Is LL A Good Stock To Buy Now?

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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 third quarter, which unveil their equity positions as of September 30. 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 Lumber Liquidators Holdings Inc (NYSE:LL).

Is LL a good stock to buy now? Lumber Liquidators Holdings Inc (NYSE:LL) investors should be aware of an increase in enthusiasm from smart money lately. Lumber Liquidators Holdings Inc (NYSE:LL) was in 14 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 17. There were 9 hedge funds in our database with LL positions at the end of the second quarter. Our calculations also showed that LL 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 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 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 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.

GOTHAM ASSET MANAGEMENT
GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover 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 and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we're going to take a look at the recent hedge fund action surrounding Lumber Liquidators Holdings Inc (NYSE:LL).

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

At third quarter's end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 56% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in LL a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Lumber Liquidators Holdings Inc (NYSE:LL), which was worth $20.1 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $13.5 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group 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 Zebra Capital Management allocated the biggest weight to Lumber Liquidators Holdings Inc (NYSE:LL), around 0.41% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.2 percent of its 13F equity portfolio to LL.

As aggregate interest increased, key money managers have jumped into Lumber Liquidators Holdings Inc (NYSE:LL) headfirst. Winton Capital Management, managed by David Harding, assembled the most outsized position in Lumber Liquidators Holdings Inc (NYSE:LL). Winton Capital Management had $2.4 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $2.1 million position during the quarter. The other funds with brand new LL positions are Joel Greenblatt's Gotham Asset Management, Greg Eisner's Engineers Gate Manager, and Parvinder Thiara's Athanor Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lumber Liquidators Holdings Inc (NYSE:LL) but similarly valued. These stocks are G-III Apparel Group, Ltd. (NASDAQ:GIII), Albireo Pharma, Inc. (NASDAQ:ALBO), Transportadora de Gas del Sur SA (NYSE:TGS), Wabash National Corporation (NYSE:WNC), The Andersons, Inc. (NASDAQ:ANDE), Colony Credit Real Estate, Inc. (NYSE:CLNC), and Neenah Inc. (NYSE:NP). This group of stocks' market caps are closest to LL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GIII,16,45316,6 ALBO,22,220205,10 TGS,6,9871,1 WNC,18,58904,3 ANDE,15,25045,4 CLNC,10,37346,4 NP,11,21432,-2 Average,14,59731,3.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $61 million in LL's case. Albireo Pharma, Inc. (NASDAQ:ALBO) is the most popular stock in this table. On the other hand Transportadora de Gas del Sur SA (NYSE:TGS) is the least popular one with only 6 bullish hedge fund positions. Lumber Liquidators Holdings Inc (NYSE:LL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LL is 59.7. 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. A small number of hedge funds were also right about betting on LL as the stock returned 32.9% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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

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