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Did Hedge Funds Make The Right Call On Lancaster Colony Corporation (LANC) ?

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 Lancaster Colony Corporation (NASDAQ:LANC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Lancaster Colony Corporation (NASDAQ:LANC) was in 23 hedge funds’ portfolios at the end of March. LANC has experienced an increase in enthusiasm from smart money in recent months. There were 16 hedge funds in our database with LANC positions at the end of the previous quarter. Our calculations also showed that LANC 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing Lancaster Colony Corporation (NASDAQ:LANC).

How have hedgies been trading Lancaster Colony Corporation (NASDAQ:LANC)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 44% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in LANC a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the biggest position in Lancaster Colony Corporation (NASDAQ:LANC), worth close to $90.9 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which holds a $41 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism contain Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and Mark Coe’s Intrinsic Edge Capital. In terms of the portfolio weights assigned to each position SG Capital Management allocated the biggest weight to Lancaster Colony Corporation (NASDAQ:LANC), around 0.79% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, designating 0.72 percent of its 13F equity portfolio to LANC.

As one would reasonably expect, key money managers have jumped into Lancaster Colony Corporation (NASDAQ:LANC) headfirst. Intrinsic Edge Capital, managed by Mark Coe, initiated the largest position in Lancaster Colony Corporation (NASDAQ:LANC). Intrinsic Edge Capital had $5.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $4.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Grossman and Glen Schneider’s SG Capital Management, Paul Tudor Jones’s Tudor Investment Corp, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s check out hedge fund activity in other stocks similar to Lancaster Colony Corporation (NASDAQ:LANC). These stocks are HollyFrontier Corporation (NYSE:HFC), Telecom Argentina S.A. (NYSE:TEO), Mercury Systems Inc (NASDAQ:MRCY), and RLI Corp. (NYSE:RLI). This group of stocks’ market caps match LANC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HFC 24 203908 -6
TEO 4 32332 -1
MRCY 12 47030 -12
RLI 15 192969 -10
Average 13.75 119060 -7.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $180 million in LANC’s case. HollyFrontier Corporation (NYSE:HFC) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 4 bullish hedge fund positions. Lancaster Colony Corporation (NASDAQ:LANC) 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 LANC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LANC were disappointed as the stock returned 7.6% 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.

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