Did Hedge Funds Make The Right Call On Lamb Weston Holdings, Inc. (LW)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Lamb Weston Holdings, Inc. (NYSE:LW) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Lamb Weston Holdings, Inc. (NYSE:LW) investors should be aware of a decrease in hedge fund interest in recent months. LW was in 29 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with LW positions at the end of the previous quarter. Our calculations also showed that LW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Jim Simons of Renaissance Technologies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the recent hedge fund action surrounding Lamb Weston Holdings, Inc. (NYSE:LW).

What does smart money think about Lamb Weston Holdings, Inc. (NYSE:LW)?

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in LW over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is LW A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Lamb Weston Holdings, Inc. (NYSE:LW), which was worth $70.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $36.4 million worth of shares. Arrowstreet Capital, Millennium Management, and GLG Partners 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 Cognios Capital allocated the biggest weight to Lamb Weston Holdings, Inc. (NYSE:LW), around 0.66% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to LW.

Seeing as Lamb Weston Holdings, Inc. (NYSE:LW) has faced falling interest from hedge fund managers, logic holds that there exists a select few money managers that slashed their positions entirely in the first quarter. Interestingly, Lee Hicks and Jan Koerner’s Park Presidio Capital cut the biggest investment of the 750 funds monitored by Insider Monkey, comprising close to $68.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $8.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Lamb Weston Holdings, Inc. (NYSE:LW). We will take a look at Phillips 66 Partners LP (NYSE:PSXP), Imperial Oil Limited (NYSE:IMO), Magellan Midstream Partners, L.P. (NYSE:MMP), and Franklin Resources, Inc. (NYSE:BEN). This group of stocks’ market caps are closest to LW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSXP 5 13913 0
IMO 13 37766 3
MMP 13 52625 -3
BEN 32 331380 -5
Average 15.75 108921 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $277 million in LW’s case. Franklin Resources, Inc. (NYSE:BEN) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 5 bullish hedge fund positions. Lamb Weston Holdings, Inc. (NYSE:LW) 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately LW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LW were disappointed as the stock returned 12.4% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Follow Lamb Weston Holdings Inc. (NYSE:LW)

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