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Were Hedge Funds Too Early Piling Into Lamar Advertising (LAMR)?

Asma UL Husna
·6 min read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Lamar Advertising Company (REIT) (NASDAQ:LAMR).

Is Lamar Advertising Company (REIT) (NASDAQ:LAMR) a healthy stock for your portfolio? Prominent investors were taking an optimistic view. The number of bullish hedge fund bets went up by 10 lately. Lamar Advertising Company (REIT) (NASDAQ:LAMR) was in 44 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LAMR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 34 hedge funds in our database with LAMR holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are a lot of methods shareholders use to value stocks. Two of the most underrated methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can outclass the broader indices by a solid margin (see the details here).

YORK CAPITAL MANAGEMENT
YORK CAPITAL MANAGEMENT

James Dinan of York Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind let's check out the recent hedge fund action regarding Lamar Advertising Company (REIT) (NASDAQ:LAMR).

Hedge fund activity in Lamar Advertising Company (REIT) (NASDAQ:LAMR)

At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in LAMR a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the number one position in Lamar Advertising Company (REIT) (NASDAQ:LAMR). Select Equity Group has a $82.5 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by Amish Mehta of SQN Investors, with a $50 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism contain Ken Griffin's Citadel Investment Group, Renaissance Technologies and Josh Resnick's Jericho Capital Asset Management. In terms of the portfolio weights assigned to each position LFL Advisers allocated the biggest weight to Lamar Advertising Company (REIT) (NASDAQ:LAMR), around 10.06% of its 13F portfolio. SQN Investors is also relatively very bullish on the stock, setting aside 3.87 percent of its 13F equity portfolio to LAMR.

As one would reasonably expect, some big names were breaking ground themselves. SQN Investors, managed by Amish Mehta, assembled the largest position in Lamar Advertising Company (REIT) (NASDAQ:LAMR). SQN Investors had $50 million invested in the company at the end of the quarter. Josh Resnick's Jericho Capital Asset Management also initiated a $35.5 million position during the quarter. The other funds with brand new LAMR positions are Richard Mashaal's Rima Senvest Management, James Dinan's York Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Lamar Advertising Company (REIT) (NASDAQ:LAMR) but similarly valued. These stocks are The Interpublic Group of Companies Inc (NYSE:IPG), American Airlines Group Inc (NASDAQ:AAL), RealPage, Inc. (NASDAQ:RP), Commerce Bancshares, Inc. (NASDAQ:CBSH), Dolby Laboratories, Inc. (NYSE:DLB), UGI Corp (NYSE:UGI), and Diamondback Energy Inc (NASDAQ:FANG). All of these stocks' market caps are closest to LAMR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IPG,22,501395,1 AAL,47,436618,11 RP,39,739694,10 CBSH,16,52750,1 DLB,28,489505,-1 UGI,26,220118,-1 FANG,29,105362,-2 Average,29.6,363635,2.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $420 million in LAMR's case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 16 bullish hedge fund positions. Lamar Advertising Company (REIT) (NASDAQ:LAMR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LAMR is 85.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately LAMR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on LAMR were disappointed as the stock returned 4.8% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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