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Were Hedge Funds Right About Flocking Into Livent Corporation (LTHM) ?

Asma UL Husna

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 18.7% so far in 2019 and outperformed the S&P 500 ETF by 6.6 percentage points. We are done processing the latest 13f filings and in this article we will study how hedge fund sentiment towards Livent Corporation (NYSE:LTHM) changed during the first quarter.

Is Livent Corporation (NYSE:LTHM) going to take off soon? Hedge funds are becoming hopeful. The number of long hedge fund bets rose by 15 recently. Our calculations also showed that LTHM isn't among the 30 most popular stocks among hedge funds. LTHM was in 25 hedge funds' portfolios at the end of the first quarter of 2019. There were 10 hedge funds in our database with LTHM holdings at the end of the previous quarter.

To most shareholders, hedge funds are perceived as worthless, old financial vehicles of yesteryear. While there are greater than 8000 funds trading at the moment, We hone in on the moguls of this club, about 750 funds. These money managers orchestrate most of the smart money's total asset base, and by monitoring their first-class equity investments, Insider Monkey has deciphered a number of investment strategies that have historically outperformed the S&P 500 index. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

YORK CAPITAL MANAGEMENT

Let's check out the recent hedge fund action surrounding Livent Corporation (NYSE:LTHM).

How are hedge funds trading Livent Corporation (NYSE:LTHM)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 150% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LTHM over the last 15 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

LTHM_june2019

Among these funds, Glenview Capital held the most valuable stake in Livent Corporation (NYSE:LTHM), which was worth $145.4 million at the end of the first quarter. On the second spot was Luminus Management which amassed $68.2 million worth of shares. Moreover, Cardinal Capital, Millennium Management, and York Capital Management were also bullish on Livent Corporation (NYSE:LTHM), allocating a large percentage of their portfolios to this stock.

Now, key hedge funds have jumped into Livent Corporation (NYSE:LTHM) headfirst. Millennium Management, managed by Israel Englander, established the most valuable position in Livent Corporation (NYSE:LTHM). Millennium Management had $33.1 million invested in the company at the end of the quarter. Mike Masters's Masters Capital Management also initiated a $12.3 million position during the quarter. The other funds with new positions in the stock are Michael Price's MFP Investors, D. E. Shaw's D E Shaw, and Benjamin A. Smith's Laurion Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Livent Corporation (NYSE:LTHM) but similarly valued. We will take a look at Tenneco Inc (NYSE:TEN), Varonis Systems Inc (NASDAQ:VRNS), Euronav NV (NYSE:EURN), and M.D.C. Holdings, Inc. (NYSE:MDC). All of these stocks' market caps are closest to LTHM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEN,26,195221,1 VRNS,25,272768,4 EURN,11,111173,0 MDC,17,102582,1 Average,19.75,170436,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $359 million in LTHM's case. Tenneco Inc (NYSE:TEN) is the most popular stock in this table. On the other hand Euronav NV (NYSE:EURN) is the least popular one with only 11 bullish hedge fund positions. Livent Corporation (NYSE:LTHM) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LTHM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LTHM were disappointed as the stock returned -48% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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