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Hedge Funds Are Buying Lincoln Electric Holdings, Inc. (LECO)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Lincoln Electric Holdings, Inc. (NASDAQ:LECO).

Is Lincoln Electric Holdings, Inc. (NASDAQ:LECO) a buy, sell, or hold? Hedge funds are getting more optimistic. The number of long hedge fund bets increased by 3 lately. Our calculations also showed that LECO 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.

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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the fresh hedge fund action encompassing Lincoln Electric Holdings, Inc. (NASDAQ:LECO).

What have hedge funds been doing with Lincoln Electric Holdings, Inc. (NASDAQ:LECO)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LECO over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the biggest position in Lincoln Electric Holdings, Inc. (NASDAQ:LECO), worth close to $59.1 million, comprising 0.8% of its total 13F portfolio. The second most bullish fund manager is Fisher Asset Management, led by Ken Fisher, holding a $47.7 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish consist of Israel Englander’s Millennium Management, Noam Gottesman’s GLG Partners and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Lincoln Electric Holdings, Inc. (NASDAQ:LECO), around 0.81% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, dishing out 0.6 percent of its 13F equity portfolio to LECO.

As one would reasonably expect, some big names were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, initiated the most outsized position in Lincoln Electric Holdings, Inc. (NASDAQ:LECO). Paloma Partners had $1.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $1 million position during the quarter. The other funds with new positions in the stock are Hoon Kim’s Quantinno Capital, D. E. Shaw’s D E Shaw, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lincoln Electric Holdings, Inc. (NASDAQ:LECO) but similarly valued. We will take a look at China Biologic Products Holdings Inc (NASDAQ:CBPO), Gold Fields Limited (NYSE:GFI), Comerica Incorporated (NYSE:CMA), and Beyond Meat, Inc. (NASDAQ:BYND). All of these stocks’ market caps are similar to LECO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBPO 16 612733 -3
GFI 22 244665 4
CMA 33 255146 -3
BYND 13 91343 -6
Average 21 300972 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $158 million in LECO’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand Beyond Meat, Inc. (NASDAQ:BYND) is the least popular one with only 13 bullish hedge fund positions. Lincoln Electric Holdings, Inc. (NASDAQ:LECO) 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately LECO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LECO investors were disappointed as the stock returned 19.8% 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.