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Did Hedge Funds Make The Right Call On Landstar System, Inc. (LSTR) ?

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 Landstar System, Inc. (NASDAQ:LSTR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Landstar System, Inc. (NASDAQ:LSTR) was in 22 hedge funds’ portfolios at the end of March. LSTR has experienced a decrease in hedge fund interest in recent months. There were 24 hedge funds in our database with LSTR positions at the end of the previous quarter. Our calculations also showed that LSTR 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.

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

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. Now we’re going to take a gander at the new hedge fund action surrounding Landstar System, Inc. (NASDAQ:LSTR).

What have hedge funds been doing with Landstar System, Inc. (NASDAQ:LSTR)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the fourth quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in LSTR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Landstar System, Inc. (NASDAQ:LSTR) was held by Royce & Associates, which reported holding $53.3 million worth of stock at the end of September. It was followed by GLG Partners with a $18.8 million position. Other investors bullish on the company included Scopus Asset Management, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Scopus Asset Management allocated the biggest weight to Landstar System, Inc. (NASDAQ:LSTR), around 1.61% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.73 percent of its 13F equity portfolio to LSTR.

Due to the fact that Landstar System, Inc. (NASDAQ:LSTR) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of money managers who sold off their entire stakes last quarter. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp dumped the biggest investment of all the hedgies followed by Insider Monkey, worth an estimated $1.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $1.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Landstar System, Inc. (NASDAQ:LSTR). We will take a look at Spire Inc. (NYSE:SR), National Oilwell Varco, Inc. (NYSE:NOV), AppFolio Inc (NASDAQ:APPF), and Iovance Biotherapeutics, Inc. (NASDAQ:IOVA). This group of stocks’ market valuations match LSTR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SR 13 40465 1
NOV 29 476345 -2
APPF 19 272296 3
IOVA 39 1344741 7
Average 25 533462 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $533 million. That figure was $157 million in LSTR’s case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Spire Inc. (NYSE:SR) is the least popular one with only 13 bullish hedge fund positions. Landstar System, Inc. (NASDAQ:LSTR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 and surpassed the market by 15.5 percentage points. Unfortunately LSTR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LSTR investors were disappointed as the stock returned 17.4% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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