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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Louisiana-Pacific Corporation (NYSE:LPX) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Louisiana-Pacific Corporation (NYSE:LPX) has experienced an increase in support from the world’s most elite money managers of late. Louisiana-Pacific Corporation (NYSE:LPX) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LPX 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.
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 S&P 500 ETFs by 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. 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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s take a peek at the key hedge fund action regarding Louisiana-Pacific Corporation (NYSE:LPX).
How are hedge funds trading Louisiana-Pacific Corporation (NYSE:LPX)?
Heading into the third quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 46% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LPX over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Louisiana-Pacific Corporation (NYSE:LPX) was held by Adage Capital Management, which reported holding $65.2 million worth of stock at the end of September. It was followed by Impala Asset Management with a $60.5 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Louisiana-Pacific Corporation (NYSE:LPX), around 6.92% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, designating 3.84 percent of its 13F equity portfolio to LPX.
Now, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Louisiana-Pacific Corporation (NYSE:LPX). Arrowstreet Capital had $32.6 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $24.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Kerr Neilson’s Platinum Asset Management, Louis Bacon’s Moore Global Investments, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Louisiana-Pacific Corporation (NYSE:LPX) but similarly valued. These stocks are HMS Holdings Corp. (NASDAQ:HMSY), Meritage Homes Corp (NYSE:MTH), CarGurus, Inc. (NASDAQ:CARG), The Howard Hughes Corporation (NYSE:HHC), NuVasive, Inc. (NASDAQ:NUVA), Shift4 Payments, Inc. (NYSE:FOUR), and Univar Solutions Inc (NYSE:UNVR). This group of stocks’ market values match LPX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $418 million in LPX’s case. NuVasive, Inc. (NASDAQ:NUVA) is the most popular stock in this table. On the other hand Shift4 Payments, Inc. (NYSE:FOUR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Louisiana-Pacific Corporation (NYSE:LPX) is more popular among hedge funds. Our overall hedge fund sentiment score for LPX is 90. 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. 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 returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on LPX as the stock returned 29% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.