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Were Hedge Funds Right About Lowe’s (LOW)?

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Abigail Fisher
·5 min read
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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Lowe's Companies, Inc. (NYSE:LOW).

Is Lowe's Companies, Inc. (NYSE:LOW) a healthy stock for your portfolio? The best stock pickers were turning less bullish. The number of long hedge fund bets fell by 12 recently. Lowe's Companies, Inc. (NYSE:LOW) was in 71 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 89. Our calculations also showed that LOW isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 83 hedge funds in our database with LOW positions at the end of the third quarter.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 website. With all of this in mind let's review the key hedge fund action regarding Lowe's Companies, Inc. (NYSE:LOW).

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

At Q4's end, a total of 71 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LOW over the last 22 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bill Ackman's Pershing Square has the most valuable position in Lowe's Companies, Inc. (NYSE:LOW), worth close to $1.9883 billion, amounting to 19.9% of its total 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $536.1 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Eric W. Mandelblatt and Gaurav Kapadia's Soroban Capital Partners, John Overdeck and David Siegel's Two Sigma Advisors and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Lowe's Companies, Inc. (NYSE:LOW), around 19.88% of its 13F portfolio. Two Creeks Capital Management is also relatively very bullish on the stock, setting aside 8.04 percent of its 13F equity portfolio to LOW.

Judging by the fact that Lowe's Companies, Inc. (NYSE:LOW) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedgies that slashed their full holdings by the end of the fourth quarter. Intriguingly, Gabriel Plotkin's Melvin Capital Management sold off the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising about $215.6 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dropped about $208.8 million worth. These moves are important to note, as total hedge fund interest fell by 12 funds by the end of the fourth quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Lowe's Companies, Inc. (NYSE:LOW) but similarly valued. These stocks are China Mobile Limited (NYSE:CHL), Royal Bank of Canada (NYSE:RY), International Business Machines Corp. (NYSE:IBM), Advanced Micro Devices, Inc. (NASDAQ:AMD), TOTAL SE (NYSE:TOT), BlackRock, Inc. (NYSE:BLK), and Raytheon Technologies Corp (NYSE:RTX). This group of stocks' market caps are closest to LOW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHL,13,275668,3 RY,18,177204,2 IBM,51,998446,11 AMD,74,6688629,3 TOT,14,980330,-4 BLK,53,1155646,14 RTX,59,2728602,4 Average,40.3,1857789,4.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $1858 million. That figure was $5192 million in LOW's case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 13 bullish hedge fund positions. Lowe's Companies, Inc. (NYSE:LOW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LOW is 64.5. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on LOW as the stock returned 27.5% since the end of Q4 (through 4/19) 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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