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Is Linx S.A. (LINX) A Good Stock To Buy?

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Linx S.A. (NYSE:LINX).

Is Linx S.A. (NYSE:LINX) going to take off soon? The best stock pickers are turning less bullish. The number of long hedge fund bets fell by 9 recently. Our calculations also showed that LINX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). LINX was in 5 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with LINX holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most market participants, hedge funds are viewed as underperforming, outdated investment vehicles of years past. While there are more than 8000 funds with their doors open today, Our researchers look at the bigwigs of this club, about 750 funds. Most estimates calculate that this group of people watch over the majority of all hedge funds’ total capital, and by watching their finest picks, Insider Monkey has revealed a few investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Chase Coleman of Tiger Global

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. With all of this in mind let’s analyze the latest hedge fund action surrounding Linx S.A. (NYSE:LINX).

How are hedge funds trading Linx S.A. (NYSE:LINX)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -64% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LINX over the last 17 quarters. 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, Tiger Global Management held the most valuable stake in Linx S.A. (NYSE:LINX), which was worth $25.9 million at the end of the third quarter. On the second spot was Alyeska Investment Group which amassed $5.8 million worth of shares. Element Capital Management, Millennium Management, and Citadel Investment Group 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 Element Capital Management allocated the biggest weight to Linx S.A. (NYSE:LINX), around 0.32% of its 13F portfolio. Tiger Global Management is also relatively very bullish on the stock, setting aside 0.14 percent of its 13F equity portfolio to LINX.

Since Linx S.A. (NYSE:LINX) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers who sold off their entire stakes in the third quarter. Interestingly, Scott Bessent’s Key Square Capital Management said goodbye to the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $13.7 million in stock. Christopher Lyle’s fund, SCGE Management, also dumped its stock, about $13.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 9 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Linx S.A. (NYSE:LINX). These stocks are State Auto Financial (NASDAQ:STFC), US Ecology Inc. (NASDAQ:ECOL), Huron Consulting Group (NASDAQ:HURN), and EnPro Industries, Inc. (NYSE:NPO). All of these stocks’ market caps are closest to LINX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STFC 7 16867 0
ECOL 8 8206 3
HURN 11 43978 0
NPO 15 127791 4
Average 10.25 49211 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $36 million in LINX’s case. EnPro Industries, Inc. (NYSE:NPO) is the most popular stock in this table. On the other hand State Auto Financial (NASDAQ:STFC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Linx S.A. (NYSE:LINX) is even less popular than STFC. Hedge funds dodged a bullet by taking a bearish stance towards LINX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LINX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LINX investors were disappointed as the stock returned -5% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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