How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Leggett & Platt, Inc. (NYSE:LEG) and determine whether hedge funds had an edge regarding this stock.
Is Leggett & Platt, Inc. (NYSE:LEG) a buy right now? The smart money was betting on the stock. The number of bullish hedge fund positions inched up by 4 recently. Leggett & Platt, Inc. (NYSE:LEG) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LEG 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 leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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. With all of this in mind let’s analyze the key hedge fund action regarding Leggett & Platt, Inc. (NYSE:LEG).
Hedge fund activity in Leggett & Platt, Inc. (NYSE:LEG)
At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LEG over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Leggett & Platt, Inc. (NYSE:LEG) was held by Scopus Asset Management, which reported holding $49.2 million worth of stock at the end of September. It was followed by Adage Capital Management with a $30.4 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Scopus Asset Management allocated the biggest weight to Leggett & Platt, Inc. (NYSE:LEG), around 1.39% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to LEG.
As industrywide interest jumped, some big names were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, assembled the most valuable position in Leggett & Platt, Inc. (NYSE:LEG). Scopus Asset Management had $49.2 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $30.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Sander Gerber’s Hudson Bay Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Leggett & Platt, Inc. (NYSE:LEG) but similarly valued. We will take a look at Globus Medical Inc (NYSE:GMED), Eastgroup Properties Inc (NYSE:EGP), Texas Pacific Land Trust (NYSE:TPL), Pure Storage, Inc. (NYSE:PSTG), The AZEK Company Inc. (NYSE:AZEK), Virtu Financial Inc (NASDAQ:VIRT), and CoreSite Realty Corp (NYSE:COR). This group of stocks’ market valuations match LEG’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $328 million. That figure was $184 million in LEG’s case. Globus Medical Inc (NYSE:GMED) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 14 bullish hedge fund positions. Leggett & Platt, Inc. (NYSE:LEG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LEG is 80.7. 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 gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on LEG as the stock returned 28.1% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.