Did Hedge Funds Make The Right Call On Landcadia Holdings, Inc. (LCAHU)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtLandcadia Holdings, Inc. (NASDAQ:LCAHU) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Landcadia Holdings, Inc. (NASDAQ:LCAHU) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LCAHU to other stocks including Sohu.com Limited (NASDAQ:SOHU), Albireo Pharma, Inc. (NASDAQ:ALBO), and Hoegh LNG Partners LP (NYSE:HMLP) to get a better sense of its popularity.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a peek at the recent hedge fund action encompassing Landcadia Holdings, Inc. (NASDAQ:LCAHU).

How have hedgies been trading Landcadia Holdings, Inc. (NASDAQ:LCAHU)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in LCAHU a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is LCAHU A Good Stock To Buy?

Among these funds, Glazer Capital held the most valuable stake in Landcadia Holdings, Inc. (NASDAQ:LCAHU), which was worth $27.7 million at the end of the third quarter. On the second spot was Fir Tree which amassed $11.3 million worth of shares. Magnetar Capital, Millennium Management, and Hudson Bay 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 Fort Baker Capital Management allocated the biggest weight to Landcadia Holdings, Inc. (NASDAQ:LCAHU), around 3.24% of its 13F portfolio. Glazer Capital is also relatively very bullish on the stock, dishing out 1.85 percent of its 13F equity portfolio to LCAHU.

Due to the fact that Landcadia Holdings, Inc. (NASDAQ:LCAHU) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedge funds that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that John Thiessen’s Vertex One Asset Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $2 million in stock. Phillip Goldstein, Andrew Dakos and Steven Samuels’s fund, Bulldog Investors, also said goodbye to its stock, about $0.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Landcadia Holdings, Inc. (NASDAQ:LCAHU). These stocks are Sohu.com Limited (NASDAQ:SOHU), Albireo Pharma, Inc. (NASDAQ:ALBO), Hoegh LNG Partners LP (NYSE:HMLP), and Preformed Line Products Company (NASDAQ:PLPC). All of these stocks’ market caps are similar to LCAHU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SOHU 10 42493 -1
ALBO 10 55546 -2
HMLP 6 15718 1
PLPC 7 22936 0
Average 8.25 34173 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $108 million in LCAHU’s case. Sohu.com Limited (NASDAQ:SOHU) is the most popular stock in this table. On the other hand Hoegh LNG Partners LP (NYSE:HMLP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Landcadia Holdings, Inc. (NASDAQ:LCAHU) is more popular among hedge funds. 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on LCAHU as the stock returned 36.3% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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