Is Liquidity Services, Inc. (LQDT) Going to Burn These Hedge Funds?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Liquidity Services, Inc. (NASDAQ:LQDT).

Liquidity Services, Inc. (NASDAQ:LQDT) investors should pay attention to an increase in hedge fund interest lately. Our calculations also showed that LQDT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 investors, hedge funds are seen as slow, old investment vehicles of years past. While there are greater than 8000 funds with their doors open today, We hone in on the elite of this group, approximately 750 funds. These investment experts administer most of all hedge funds’ total asset base, and by keeping an eye on their inimitable equity investments, Insider Monkey has identified various investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed 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 .

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the latest hedge fund action encompassing Liquidity Services, Inc. (NASDAQ:LQDT).

How have hedgies been trading Liquidity Services, Inc. (NASDAQ:LQDT)?

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LQDT over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies holds the number one position in Liquidity Services, Inc. (NASDAQ:LQDT). Renaissance Technologies has a $17.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Jeffrey Moskowitz of Harvey Partners, with a $6.7 million position; the fund has 4.9% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Jim Roumell’s Roumell Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Roumell Asset Management allocated the biggest weight to Liquidity Services, Inc. (NASDAQ:LQDT), around 14.31% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, setting aside 4.87 percent of its 13F equity portfolio to LQDT.

Now, key money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, initiated the biggest position in Liquidity Services, Inc. (NASDAQ:LQDT). Winton Capital Management had $0.4 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks similar to Liquidity Services, Inc. (NASDAQ:LQDT). We will take a look at Recro Pharma Inc (NASDAQ:REPH), Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), Consolidated Water Co. Ltd. (NASDAQ:CWCO), and Gladstone Land Corporation (NASDAQ:LAND). This group of stocks’ market values match LQDT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REPH 12 50206 1
STSA 7 108938 7
CWCO 3 10018 0
LAND 6 6424 0
Average 7 43897 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $33 million in LQDT’s case. Recro Pharma Inc (NASDAQ:REPH) is the most popular stock in this table. On the other hand Consolidated Water Co. Ltd. (NASDAQ:CWCO) is the least popular one with only 3 bullish hedge fund positions. Liquidity Services, Inc. (NASDAQ:LQDT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LQDT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LQDT were disappointed as the stock returned -5.5% 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 many of these stocks already outperformed the market so far this year.

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