Hedge fund managers like David Einhorn, Dan Loeb, and Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Lexmark International Inc (NYSE:LXK).
Is Lexmark International Inc (NYSE:LXK) the right pick for your portfolio? Money managers are taking a slightly pessimistic view. The number of bullish hedge fund positions fell by 1 in recent months. LXK was in 21 hedge funds’ portfolios at the end of September. There were 22 hedge funds in our database with LXK positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Cornerstone OnDemand, Inc. (NASDAQ:CSOD), The Buckle, Inc. (NYSE:BKE), and Grand Canyon Education Inc (NASDAQ:LOPE) to gather more data points.
To most traders, hedge funds are viewed as underperforming, old investment tools of the past. While there are over 8,000 funds in operation at the moment, we look at the top tier of this group, about 700 funds. These hedge fund managers orchestrate the lion’s share of the hedge fund industry’s total capital, and by shadowing their highest performing investments, Insider Monkey has formulated various investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
Now, we’re going to review the key action encompassing Lexmark International Inc (NYSE:LXK).
How have hedgies been trading Lexmark International Inc (NYSE:LXK)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 5% dip from the previous quarter. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or had already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, David Cohen and Harold Levy’s Iridian Asset Management has the most valuable position in Lexmark International Inc (NYSE:LXK), worth close to $161.7 million, corresponding to 1.4% of its total 13F portfolio. Sitting in the 2 spot is Cliff Asness of AQR Capital Management, with a $37.3 million position; the fund manager has 0.1% of his fund’s 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, Joe Huber’s Huber Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Judging by the fact that Lexmark International Inc (NYSE:LXK) has witnessed falling interest from the smart money, it’s easy to see that there exists a select few hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Renaissance Technologies said goodbye to the largest investment of the 700 funds watched by Insider Monkey, totaling an estimated $9.7 million in shares underlying call options, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $2.3 million worth of shares. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 fund last quarter.
Let’s now review hedge fund activity in other stocks similar to Lexmark International Inc (NYSE:LXK). These stocks are Cornerstone OnDemand, Inc. (NASDAQ:CSOD), The Buckle, Inc. (NYSE:BKE), Grand Canyon Education Inc (NASDAQ:LOPE), and Plantronics, Inc. (NYSE:PLT). This group of stocks’ market valuations match LXK’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $393 million in LXK’s case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Plantronics, Inc. (NYSE:PLT) is the least popular one with only 15 bullish hedge fund positions. Lexmark International Inc (NYSE:LXK) is tied for the most popular stock in this group, and with more money invested in it than any other stock. This is a positive signal and makes it a good candidate to consider a long position in.