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 these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of L3Harris Technologies, Inc. (NYSE:LHX).
Is L3Harris Technologies, Inc. (NYSE:LHX) a good investment now? Hedge funds are selling. The number of bullish hedge fund bets were trimmed by 3 in recent months. Our calculations also showed that LHX 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_366432" align="aligncenter" width="397"] Jeffrey Tannenbaum of Fir Tree[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 we're going to check out the fresh hedge fund action encompassing L3Harris Technologies, Inc. (NYSE:LHX).
What have hedge funds been doing with L3Harris Technologies, Inc. (NYSE:LHX)?
At Q4's end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LHX over the last 18 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in L3Harris Technologies, Inc. (NYSE:LHX). Citadel Investment Group has a $675.7 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $167.8 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other peers that hold long positions consist of Brandon Haley's Holocene Advisors, David Cohen and Harold Levy's Iridian Asset Management and Phill Gross and Robert Atchinson's Adage Capital Management. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to L3Harris Technologies, Inc. (NYSE:LHX), around 19.94% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, earmarking 5.41 percent of its 13F equity portfolio to LHX.
Seeing as L3Harris Technologies, Inc. (NYSE:LHX) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there is a sect of funds who sold off their entire stakes by the end of the third quarter. Intriguingly, John Smith Clark's Southpoint Capital Advisors dropped the biggest stake of all the hedgies watched by Insider Monkey, valued at close to $93.9 million in stock. Zach Schreiber's fund, Point State Capital, also dumped its stock, about $39.9 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as L3Harris Technologies, Inc. (NYSE:LHX) but similarly valued. These stocks are SYSCO Corporation (NYSE:SYY), National Grid plc (NYSE:NGG), Sempra Energy (NYSE:SRE), and Baxter International Inc. (NYSE:BAX). This group of stocks' market caps resemble LHX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYY,28,3021435,3 NGG,6,439511,-4 SRE,35,717221,4 BAX,47,3519863,8 Average,29,1924508,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1925 million. That figure was $2542 million in LHX's case. Baxter International Inc. (NYSE:BAX) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks L3Harris Technologies, Inc. (NYSE:LHX) is more popular among hedge funds. 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 1.3% in 2020 through May 1st but still managed to beat the market by 12.9 percentage points. Hedge funds were also right about betting on LHX, though not to the same extent, as the stock returned -3.8% in 2020 (through May 1st) and outperformed the market as well. 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.