Hedge Funds Are Dumping Lamb Weston Holdings, Inc. (LW)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Lamb Weston Holdings, Inc. (NYSE:LW) and determine whether the smart money was really smart about this stock.

Lamb Weston Holdings, Inc. (NYSE:LW) was in 25 hedge funds’ portfolios at the end of June. The all time high for this statistics is 42. LW investors should pay attention to a decrease in enthusiasm from smart money of late. There were 29 hedge funds in our database with LW positions at the end of the first quarter. Our calculations also showed that LW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s view the fresh hedge fund action surrounding Lamb Weston Holdings, Inc. (NYSE:LW).

How have hedgies been trading Lamb Weston Holdings, Inc. (NYSE:LW)?

At second quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in LW a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the biggest position in Lamb Weston Holdings, Inc. (NYSE:LW), worth close to $31.5 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Candlestick Capital Management, managed by Jack Woodruff, which holds a $25.6 million position; 0.9% of its 13F portfolio is allocated to the company. Other peers that are bullish include Noam Gottesman’s GLG Partners, and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Candlestick Capital Management allocated the biggest weight to Lamb Weston Holdings, Inc. (NYSE:LW), around 0.93% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, earmarking 0.24 percent of its 13F equity portfolio to LW.

Due to the fact that Lamb Weston Holdings, Inc. (NYSE:LW) has witnessed falling interest from the smart money, logic holds that there is a sect of hedgies that slashed their full holdings heading into Q3. Intriguingly, D. E. Shaw’s D E Shaw cut the largest position of the 750 funds watched by Insider Monkey, totaling close to $2.3 million in stock, and Mika Toikka’s AlphaCrest Capital Management was right behind this move, as the fund sold off about $1.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lamb Weston Holdings, Inc. (NYSE:LW) but similarly valued. We will take a look at Guidewire Software Inc (NYSE:GWRE), Brookfield Property Partners LP (NYSE:BPY), Fidelity National Financial Inc (NYSE:FNF), Huntington Bancshares Incorporated (NASDAQ:HBAN), Zynga Inc (NASDAQ:ZNGA), PulteGroup, Inc. (NYSE:PHM), and Suzano S.A. (NYSE:SUZ). This group of stocks’ market caps are closest to LW’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.9 hedge funds with bullish positions and the average amount invested in these stocks was $598 million. That figure was $190 million in LW’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 3 bullish hedge fund positions. Lamb Weston Holdings, Inc. (NYSE:LW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LW is 41.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately LW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LW investors were disappointed as the stock returned 1.9% since Q2 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.

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