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Did Hedge Funds Make The Right Call On Loews Corporation (L) ?

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 Loews Corporation (NYSE:L) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Loews Corporation (NYSE:L) was in 21 hedge funds’ portfolios at the end of March. L has experienced a decrease in hedge fund interest recently. There were 24 hedge funds in our database with L holdings at the end of the previous quarter. Our calculations also showed that L 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.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind we’re going to take a look at the latest hedge fund action regarding Loews Corporation (NYSE:L).

What does smart money think about Loews Corporation (NYSE:L)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards L over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ric Dillon’s Diamond Hill Capital has the most valuable position in Loews Corporation (NYSE:L), worth close to $63.5 million, corresponding to 0.4% of its total 13F portfolio. The second most bullish fund manager is Scott Wallace of Wallace Capital Management, with a $17.2 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Jeremy Hosking’s Hosking Partners, John A. Levin’s Levin Capital Strategies and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Wallace Capital Management allocated the biggest weight to Loews Corporation (NYSE:L), around 3.31% of its 13F portfolio. DPM Capital is also relatively very bullish on the stock, setting aside 1.81 percent of its 13F equity portfolio to L.

Seeing as Loews Corporation (NYSE:L) has experienced falling interest from the smart money, logic holds that there exists a select few funds who were dropping their full holdings in the first quarter. Interestingly, D. E. Shaw’s D E Shaw dropped the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $4.7 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $4.1 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Loews Corporation (NYSE:L) but similarly valued. We will take a look at W.P. Carey Inc. (NYSE:WPC), Ventas, Inc. (NYSE:VTR), Godaddy Inc (NYSE:GDDY), and CBOE Global Markets Inc (NASDAQ:CBOE). All of these stocks’ market caps are closest to L’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPC 22 33963 1
VTR 25 337381 -4
GDDY 54 2247882 3
CBOE 38 780569 11
Average 34.75 849949 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $850 million. That figure was $108 million in L’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand W.P. Carey Inc. (NYSE:WPC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Loews Corporation (NYSE:L) is even less popular than WPC. Hedge funds dodged a bullet by taking a bearish stance towards L. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. Unfortunately L wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); L investors were disappointed as the stock returned 4.4% since Q1 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 so far in 2020.

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