We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In this article we take a look at the smart money sentiment towards La-Z-Boy Incorporated (NYSE:LZB).
Is La-Z-Boy Incorporated (NYSE:LZB) going to take off soon? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund bets decreased by 4 recently. Our calculations also showed that LZB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30602" align="aligncenter" width="400"] Philippe Laffont of Coatue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the key hedge fund action regarding La-Z-Boy Incorporated (NYSE:LZB).
What does smart money think about La-Z-Boy Incorporated (NYSE:LZB)?
At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in LZB a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of La-Z-Boy Incorporated (NYSE:LZB), with a stake worth $16.7 million reported as of the end of September. Trailing Royce & Associates was GLG Partners, which amassed a stake valued at $14 million. GAMCO Investors, D E Shaw, and Arrowstreet Capital 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 Royce & Associates allocated the biggest weight to La-Z-Boy Incorporated (NYSE:LZB), around 0.15% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.13 percent of its 13F equity portfolio to LZB.
Judging by the fact that La-Z-Boy Incorporated (NYSE:LZB) has faced bearish sentiment from hedge fund managers, we can see that there were a few money managers that decided to sell off their entire stakes in the third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest investment of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $6.5 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund cut about $1.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to La-Z-Boy Incorporated (NYSE:LZB). We will take a look at MicroStrategy Incorporated (NASDAQ:MSTR), Industrial Logistics Properties Trust (NASDAQ:ILPT), Methode Electronics Inc. (NYSE:MEI), and Trinseo S.A. (NYSE:TSE). This group of stocks' market values are similar to LZB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSTR,25,108172,3 ILPT,13,83062,1 MEI,14,117121,2 TSE,18,90904,3 Average,17.5,99815,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $87 million in LZB's case. MicroStrategy Incorporated (NASDAQ:MSTR) is the most popular stock in this table. On the other hand Industrial Logistics Properties Trust (NASDAQ:ILPT) is the least popular one with only 13 bullish hedge fund positions. La-Z-Boy Incorporated (NYSE:LZB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately LZB wasn't nearly as popular as these 10 stocks and hedge funds that were betting on LZB were disappointed as the stock returned -28.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.