How Did Linde plc (LIN) Compare Against Top Hedge Fund Stocks in 2019?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Linde plc (NYSE:LIN) and see how the stock performed in comparison to hedge funds’ consensus picks.

Is Linde plc (NYSE:LIN) undervalued? Prominent investors are becoming more confident. The number of bullish hedge fund bets moved up by 3 recently. Our calculations also showed that LIN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a peek at the latest hedge fund action regarding Linde plc (NYSE:LIN).

How are hedge funds trading Linde plc (NYSE:LIN)?

At the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LIN over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, D1 Capital Partners held the most valuable stake in Linde plc (NYSE:LIN), which was worth $321.6 million at the end of the third quarter. On the second spot was Steadfast Capital Management which amassed $263.2 million worth of shares. Holocene Advisors, Polaris Capital Management, and Diamond Hill Capital 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 Polaris Capital Management allocated the biggest weight to Linde plc (NYSE:LIN), around 9.33% of its 13F portfolio. VGI Partners is also relatively very bullish on the stock, earmarking 8.72 percent of its 13F equity portfolio to LIN.

Consequently, key money managers have jumped into Linde plc (NYSE:LIN) headfirst. Soroban Capital Partners, managed by Eric W. Mandelblatt and Gaurav Kapadia, created the largest position in Linde plc (NYSE:LIN). Soroban Capital Partners had $68.6 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $46.2 million position during the quarter. The other funds with brand new LIN positions are Zach Schreiber’s Point State Capital, Greg Poole’s Echo Street Capital Management, and Alexander Mitchell’s Scopus Asset Management.

Let’s now review hedge fund activity in other stocks similar to Linde plc (NYSE:LIN). These stocks are ASML Holding N.V. (NASDAQ:ASML), Danaher Corporation (NYSE:DHR), United Parcel Service, Inc. (NYSE:UPS), and American Express Company (NYSE:AXP). All of these stocks’ market caps are similar to LIN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ASML 15 774677 3
DHR 57 2732120 -1
UPS 41 1365649 5
AXP 48 21377087 3
Average 40.25 6562383 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $6562 million. That figure was $2523 million in LIN’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 15 bullish hedge fund positions. Linde plc (NYSE:LIN) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on LIN, though not to the same extent, as the stock returned 38.3% during 2019 (as of 12/23) and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
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.