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Hedge Funds Are Selling Lindsay Corporation (LNN)

Is Lindsay Corporation (NYSE:LNN) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Lindsay Corporation (NYSE:LNN) was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. LNN investors should pay attention to a decrease in enthusiasm from smart money of late. There were 7 hedge funds in our database with LNN holdings at the end of the previous quarter. Our calculations also showed that LNN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Matthew Hulsizer PEAK6 Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the key hedge fund action encompassing Lindsay Corporation (NYSE:LNN).

What does smart money think about Lindsay Corporation (NYSE:LNN)?

At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the first quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in LNN 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.

LNN_oct2019

More specifically, Royce & Associates was the largest shareholder of Lindsay Corporation (NYSE:LNN), with a stake worth $72.7 million reported as of the end of March. Trailing Royce & Associates was Impax Asset Management, which amassed a stake valued at $72 million. Renaissance Technologies, GAMCO Investors, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was PEAK6 Capital Management).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Lindsay Corporation (NYSE:LNN) but similarly valued. We will take a look at Casa Therapeutics Inc (NASDAQ:CARA), Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), ZIOPHARM Oncology Inc. (NASDAQ:ZIOP), and Tufin Software Technologies Ltd. (NYSE:TUFN). All of these stocks’ market caps are similar to LNN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CARA 8 38902 0
DCPH 15 234197 -2
ZIOP 12 141596 6
TUFN 6 34868 6
Average 10.25 112391 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $176 million in LNN’s case. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is the most popular stock in this table. On the other hand Tufin Software Technologies Ltd. (NYSE:TUFN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Lindsay Corporation (NYSE:LNN) is even less popular than TUFN. Hedge funds clearly dropped the ball on LNN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on LNN as the stock returned 13.3% during the third quarter and outperformed the market by an even larger margin.

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

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