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Were Hedge Funds Right About Leidos Holdings Inc (LDOS)?

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·6 min read
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At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Leidos Holdings Inc (NYSE:LDOS) makes for a good investment right now.

Leidos Holdings Inc (NYSE:LDOS) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 35. LDOS investors should pay attention to an increase in support from the world's most elite money managers lately. There were 14 hedge funds in our database with LDOS holdings at the end of December. Our calculations also showed that LDOS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the eyes of most shareholders, hedge funds are perceived as slow, old financial tools of years past. While there are more than 8000 funds in operation at the moment, Our experts hone in on the bigwigs of this club, approximately 850 funds. These investment experts oversee the majority of the hedge fund industry's total asset base, and by paying attention to their best stock picks, Insider Monkey has identified numerous investment strategies that have historically outperformed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .


Cliff Asness of AQR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind we're going to view the new hedge fund action encompassing Leidos Holdings Inc (NYSE:LDOS).

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

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the fourth quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in LDOS a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is LDOS A Good Stock To Buy?
Is LDOS A Good Stock To Buy?

More specifically, Millennium Management was the largest shareholder of Leidos Holdings Inc (NYSE:LDOS), with a stake worth $38 million reported as of the end of March. Trailing Millennium Management was Prospector Partners, which amassed a stake valued at $10.2 million. Soapstone Capital, Holocene Advisors, 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 Soapstone Capital allocated the biggest weight to Leidos Holdings Inc (NYSE:LDOS), around 4.1% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, setting aside 1.48 percent of its 13F equity portfolio to LDOS.

As industrywide interest jumped, some big names were breaking ground themselves. Running Oak Capital, managed by Seth Cogswell, established the largest position in Leidos Holdings Inc (NYSE:LDOS). Running Oak Capital had $4.9 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $4.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group, Renaissance Technologies, and Donald Sussman's Paloma Partners.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Leidos Holdings Inc (NYSE:LDOS) but similarly valued. We will take a look at James Hardie Industries plc (NYSE:JHX), NovoCure Limited (NASDAQ:NVCR), Alliant Energy Corporation (NYSE:LNT), Evergy, Inc. (NYSE:EVRG), Mohawk Industries, Inc. (NYSE:MHK), Tenaris S.A. (NYSE:TS), and Novavax, Inc. (NASDAQ:NVAX). This group of stocks' market caps resemble LDOS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JHX,4,12557,0 NVCR,22,292428,0 LNT,13,98600,-16 EVRG,30,1197999,-3 MHK,36,1297287,-3 TS,10,327456,-2 NVAX,38,1271331,1 Average,21.9,642523,-3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $643 million. That figure was $94 million in LDOS's case. Novavax, Inc. (NASDAQ:NVAX) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 4 bullish hedge fund positions. Leidos Holdings Inc (NYSE:LDOS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LDOS is 45. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately LDOS wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LDOS investors were disappointed as the stock returned 10.9% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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