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Is Luby’s, Inc. (LUB) Going to Burn These Hedge Funds?

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Luby's, Inc. (NYSE:LUB).

Is Luby's, Inc. (NYSE:LUB) a bargain? Investors who are in the know were buying. The number of bullish hedge fund bets advanced by 1 in recent months. Luby's, Inc. (NYSE:LUB) was in 4 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 6. Our calculations also showed that LUB isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin CITADEL INVESTMENT GROUP
Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. Now we're going to take a look at the new hedge fund action surrounding Luby's, Inc. (NYSE:LUB).

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

At first quarter's end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in LUB a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bandera Partners, managed by Gregory Bylinsky and Jefferson Gramm, holds the most valuable position in Luby's, Inc. (NYSE:LUB). Bandera Partners has a $9.4 million position in the stock, comprising 3.7% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $1.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism comprise Frederick DiSanto's Ancora Advisors, Ken Griffin's Citadel Investment Group and . In terms of the portfolio weights assigned to each position Bandera Partners allocated the biggest weight to Luby's, Inc. (NYSE:LUB), around 3.72% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, dishing out 0.0018 percent of its 13F equity portfolio to LUB.

Consequently, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in Luby's, Inc. (NYSE:LUB). Citadel Investment Group had $0 million invested in the company at the end of the quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Luby's, Inc. (NYSE:LUB) but similarly valued. We will take a look at Heritage Global Inc. (NASDAQ:HGBL), electroCore, Inc. (NASDAQ:ECOR), Huttig Building Products, Inc. (NASDAQ:HBP), Soleno Therapeutics, Inc. (NASDAQ:SLNO), Castor Maritime Inc. (NASDAQ:CTRM), Oragenics Inc. (NYSE:OGEN), and DAVIDsTEA Inc. (NASDAQ:DTEA). This group of stocks' market valuations are closest to LUB's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HGBL,3,1128,0 ECOR,5,1253,2 HBP,3,10764,0 SLNO,8,11931,-4 CTRM,1,5174,-3 OGEN,1,336,0 DTEA,3,451,1 Average,3.4,4434,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.4 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $11 million in LUB's case. Soleno Therapeutics, Inc. (NASDAQ:SLNO) is the most popular stock in this table. On the other hand Castor Maritime Inc. (NASDAQ:CTRM) is the least popular one with only 1 bullish hedge fund positions. Luby's, Inc. (NYSE:LUB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LUB is 47.4. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on LUB as the stock returned 12.7% since the end of Q1 (through 6/11) 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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