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Hedge Funds Slowly Warming Up To Lincoln Electric Holdings, Inc. (LECO)

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 Lincoln Electric Holdings, Inc. (NASDAQ:LECO) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Lincoln Electric Holdings, Inc. (NASDAQ:LECO) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 26. LECO shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 19 hedge funds in our database with LECO positions at the end of the first quarter. Our calculations also showed that LECO 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.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

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 lithium company which could also benefit from the electric car adoption. 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. Keeping this in mind we’re going to analyze the key hedge fund action encompassing Lincoln Electric Holdings, Inc. (NASDAQ:LECO).

How have hedgies been trading Lincoln Electric Holdings, Inc. (NASDAQ:LECO)?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the first quarter of 2020. By comparison, 22 hedge funds held shares or bullish call options in LECO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Royce & Associates held the most valuable stake in Lincoln Electric Holdings, Inc. (NASDAQ:LECO), which was worth $67 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $66.9 million worth of shares. Arrowstreet Capital, GLG Partners, and GAMCO Investors 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 Jade Capital Advisors allocated the biggest weight to Lincoln Electric Holdings, Inc. (NASDAQ:LECO), around 0.82% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.74 percent of its 13F equity portfolio to LECO.

As industrywide interest jumped, some big names have jumped into Lincoln Electric Holdings, Inc. (NASDAQ:LECO) headfirst. Scopus Asset Management, managed by Alexander Mitchell, assembled the most outsized position in Lincoln Electric Holdings, Inc. (NASDAQ:LECO). Scopus Asset Management had $6.7 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $1.6 million position during the quarter. The other funds with brand new LECO positions are Parvinder Thiara’s Athanor Capital, Robert Vincent McHugh’s Jade Capital Advisors, and Joel Greenblatt’s Gotham Asset Management.

Let’s check out hedge fund activity in other stocks similar to Lincoln Electric Holdings, Inc. (NASDAQ:LECO). These stocks are Euronet Worldwide, Inc. (NASDAQ:EEFT), Mirati Therapeutics, Inc. (NASDAQ:MRTX), Old Republic International Corporation (NYSE:ORI), Dada Nexus Limited (NASDAQ:DADA), Skechers USA Inc (NYSE:SKX), Invesco Ltd. (NYSE:IVZ), and People’s United Financial, Inc. (NASDAQ:PBCT). This group of stocks’ market values are similar to LECO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EEFT 37 311496 7
MRTX 36 1586629 3
ORI 26 232497 -1
DADA 17 64230 17
SKX 33 624872 7
IVZ 22 161181 -4
PBCT 24 89424 2
Average 27.9 438618 4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $204 million in LECO’s case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand Dada Nexus Limited (NASDAQ:DADA) is the least popular one with only 17 bullish hedge fund positions. Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LECO is 45.9. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on LECO, though not to the same extent, as the stock returned 9.8% during Q3 and outperformed the market.

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