Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Lennox International Inc. (NYSE:LII).
Is Lennox International Inc. (NYSE:LII) a healthy stock for your portfolio? The smart money is taking an optimistic view. The number of bullish hedge fund positions improved by 7 in recent months. Our calculations also showed that LII isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the new hedge fund action surrounding Lennox International Inc. (NYSE:LII).
What have hedge funds been doing with Lennox International Inc. (NYSE:LII)?
Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LII over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Point72 Asset Management was the largest shareholder of Lennox International Inc. (NYSE:LII), with a stake worth $72.2 million reported as of the end of September. Trailing Point72 Asset Management was Impax Asset Management, which amassed a stake valued at $54.6 million. Two Sigma Advisors, Balyasny Asset Management, and Scopus Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Selz Capital allocated the biggest weight to Lennox International Inc. (NYSE:LII), around 2.32% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, designating 2.15 percent of its 13F equity portfolio to LII.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, assembled the largest position in Lennox International Inc. (NYSE:LII). Scopus Asset Management had $17.1 million invested in the company at the end of the quarter. Bernard Selz’s Selz Capital also made a $13.2 million investment in the stock during the quarter. The following funds were also among the new LII investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Mark Coe’s Intrinsic Edge Capital, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lennox International Inc. (NYSE:LII) but similarly valued. We will take a look at Nordson Corporation (NASDAQ:NDSN), Coupa Software Incorporated (NASDAQ:COUP), Whirlpool Corporation (NYSE:WHR), and Tata Motors Limited (NYSE:TTM). This group of stocks’ market valuations are closest to LII’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NDSN | 29 | 152005 | 13 |
| COUP | 55 | 2624527 | -2 |
| WHR | 28 | 1045246 | -3 |
| TTM | 11 | 148219 | 4 |
| Average | 30.75 | 992499 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $992 million. That figure was $295 million in LII’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 11 bullish hedge fund positions. Lennox International Inc. (NYSE:LII) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on LII as the stock returned -18.4% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
