We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Lamar Advertising Co (NASDAQ:LAMR) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Lamar Advertising Co (NASDAQ:LAMR) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that LAMR 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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. With all of this in mind let’s take a gander at the recent hedge fund action regarding Lamar Advertising Co (NASDAQ:LAMR).
How have hedgies been trading Lamar Advertising Co (NASDAQ:LAMR)?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LAMR over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Lamar Advertising Co (NASDAQ:LAMR), which was worth $168.8 million at the end of the third quarter. On the second spot was Water Street Capital which amassed $13.5 million worth of shares. Echo Street Capital Management, Grisanti Brown & Partners, and AQR Capital 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 Grisanti Brown & Partners allocated the biggest weight to Lamar Advertising Co (NASDAQ:LAMR), around 4.28% of its 13F portfolio. LFL Advisers is also relatively very bullish on the stock, dishing out 3.17 percent of its 13F equity portfolio to LAMR.
Seeing as Lamar Advertising Co (NASDAQ:LAMR) has faced declining sentiment from the smart money, it’s safe to say that there is a sect of fund managers that slashed their positions entirely in the third quarter. Interestingly, Lawrence Raiman’s LDR Capital dumped the largest investment of the 750 funds tracked by Insider Monkey, worth close to $6.5 million in stock. Ken Heebner’s fund, Capital Growth Management, also cut its stock, about $4.9 million worth. These moves are interesting, as total hedge fund interest fell by 5 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Lamar Advertising Co (NASDAQ:LAMR). We will take a look at BorgWarner Inc. (NYSE:BWA), Interpublic Group of Companies Inc (NYSE:IPG), Western Gas Partners, LP (NYSE:WES), and OGE Energy Corp. (NYSE:OGE). This group of stocks’ market caps match LAMR’s market cap.
|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 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $437 million. That figure was $252 million in LAMR’s case. BorgWarner Inc. (NYSE:BWA) is the most popular stock in this table. On the other hand Western Gas Partners, LP (NYSE:WES) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Lamar Advertising Co (NASDAQ:LAMR) is more popular among hedge funds. 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 and still beat the market by 3.2 percentage points. Unfortunately LAMR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LAMR were disappointed as the stock returned -43.8% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.