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Was The Smart Money Right About Lam Research Corporation (LRCX)?

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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Lam Research Corporation (NASDAQ:LRCX) changed recently.

Lam Research Corporation (NASDAQ:LRCX) shareholders have witnessed an increase in hedge fund sentiment lately. Lam Research Corporation (NASDAQ:LRCX) was in 56 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 62. There were 55 hedge funds in our database with LRCX positions at the end of the third quarter. Our calculations also showed that LRCX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 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 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.

COATUE MANAGEMENT
COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 glance at the key hedge fund action encompassing Lam Research Corporation (NASDAQ:LRCX).

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

At Q4's end, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in LRCX over the last 22 quarters. With hedge funds' 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).

More specifically, Fisher Asset Management was the largest shareholder of Lam Research Corporation (NASDAQ:LRCX), with a stake worth $452.2 million reported as of the end of December. Trailing Fisher Asset Management was Coatue Management, which amassed a stake valued at $449.7 million. Alkeon Capital Management, Maverick Capital, and AQR Capital Management 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 Marlowe Partners allocated the biggest weight to Lam Research Corporation (NASDAQ:LRCX), around 17.02% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, dishing out 8.12 percent of its 13F equity portfolio to LRCX.

As industrywide interest jumped, specific money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, initiated the largest position in Lam Research Corporation (NASDAQ:LRCX). Moore Global Investments had $12.6 million invested in the company at the end of the quarter. Peter S. Park's Park West Asset Management also initiated a $8 million position during the quarter. The following funds were also among the new LRCX investors: Mark R. Freeman's Socorro Asset Management, Tor Minesuk's Mondrian Capital, and Qing Li's Sciencast Management.

Let's check out hedge fund activity in other stocks similar to Lam Research Corporation (NASDAQ:LRCX). We will take a look at Duke Energy Corporation (NYSE:DUK), Autodesk, Inc. (NASDAQ:ADSK), The Sherwin-Williams Company (NYSE:SHW), The Bank of Nova Scotia (NYSE:BNS), CME Group Inc (NASDAQ:CME), NetEase, Inc (NASDAQ:NTES), and The Southern Company (NYSE:SO). All of these stocks' market caps match LRCX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DUK,38,614751,2 ADSK,66,3528315,1 SHW,49,1881345,-6 BNS,19,336708,5 CME,58,2275518,-1 NTES,38,3467820,-7 SO,32,400160,7 Average,42.9,1786374,0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.9 hedge funds with bullish positions and the average amount invested in these stocks was $1786 million. That figure was $2620 million in LRCX's case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 19 bullish hedge fund positions. Lam Research Corporation (NASDAQ:LRCX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LRCX is 72.5. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on LRCX as the stock returned 31.7% since the end of Q4 (through 4/30) 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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