Here’s What Hedge Funds Think About Lam Research Corporation (LRCX)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Lam Research Corporation (NASDAQ:LRCX) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Lam Research Corporation (NASDAQ:LRCX) the right investment to pursue these days? Investors who are in the know are in a pessimistic mood. The number of long hedge fund positions were cut by 4 lately. Our calculations also showed that LRCX isn’t among the 30 most popular stocks among hedge funds. LRCX was in 32 hedge funds’ portfolios at the end of the first quarter of 2019. There were 36 hedge funds in our database with LRCX positions at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Eric Mandelblatt Soroban Capital Partners

We’re going to take a glance at the latest hedge fund action encompassing Lam Research Corporation (NASDAQ:LRCX).

How have hedgies been trading Lam Research Corporation (NASDAQ:LRCX)?

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LRCX over the last 15 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).


More specifically, AQR Capital Management was the largest shareholder of Lam Research Corporation (NASDAQ:LRCX), with a stake worth $232.5 million reported as of the end of March. Trailing AQR Capital Management was RGM Capital, which amassed a stake valued at $116.5 million. Adage Capital Management, Soroban Capital Partners, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Because Lam Research Corporation (NASDAQ:LRCX) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds that slashed their entire stakes by the end of the third quarter. Interestingly, Ray Dalio’s Bridgewater Associates dumped the biggest position of all the hedgies monitored by Insider Monkey, worth about $21.6 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $16 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Lam Research Corporation (NASDAQ:LRCX). We will take a look at TE Connectivity Ltd. (NYSE:TEL), Consolidated Edison, Inc. (NYSE:ED), PT Telekomunikasi Indonesia (NYSE:TLK), and Atlassian Corporation Plc (NASDAQ:TEAM). This group of stocks’ market valuations are closest to LRCX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEL 26 1246747 1
ED 23 1182957 0
TLK 9 134035 3
TEAM 36 1618697 2
Average 23.5 1045609 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $1046 million. That figure was $1021 million in LRCX’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 9 bullish hedge fund positions. Lam Research Corporation (NASDAQ:LRCX) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on LRCX, though not to the same extent, as the stock returned -0.2% during the same time frame and outperformed the market as well.

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