Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
Is Loews Corporation (NYSE:L) undervalued? The smart money is buying. The number of long hedge fund bets advanced by 1 recently. Our calculations also showed that L isn’t among the 30 most popular stocks among hedge funds (view the video below). L was in 21 hedge funds’ portfolios at the end of the second quarter of 2019. There were 20 hedge funds in our database with L holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the new hedge fund action surrounding Loews Corporation (NYSE:L).
How are hedge funds trading Loews Corporation (NYSE:L)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards L over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in Loews Corporation (NYSE:L), which was worth $162.3 million at the end of the second quarter. On the second spot was GLG Partners which amassed $25.9 million worth of shares. Moreover, Wallace Capital Management, Levin Capital Strategies, and Adage Capital Management were also bullish on Loews Corporation (NYSE:L), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the most outsized position in Loews Corporation (NYSE:L). Millennium Management had $4.9 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $3.7 million position during the quarter. The other funds with brand new L positions are Perella Weinberg Partners, Ken Griffin’s Citadel Investment Group, and Ronald Hua’s Qtron Investments.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Loews Corporation (NYSE:L) but similarly valued. We will take a look at Nucor Corporation (NYSE:NUE), Arthur J. Gallagher & Co. (NYSE:AJG), Altice USA, Inc. (NYSE:ATUS), and Freeport-McMoRan Inc. (NYSE:FCX). This group of stocks’ market valuations are similar to L’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NUE | 22 | 237610 | -4 |
| AJG | 25 | 318008 | -3 |
| ATUS | 45 | 2879579 | -7 |
| FCX | 33 | 1184030 | -9 |
| Average | 31.25 | 1154807 | -5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1155 million. That figure was $259 million in L’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Nucor Corporation (NYSE:NUE) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Loews Corporation (NYSE:L) is even less popular than NUE. Hedge funds dodged a bullet by taking a bearish stance towards L. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately L wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); L investors were disappointed as the stock returned -5.7% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
