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Is Lowe’s Companies, Inc. (LOW) Going to Burn You And These Investors?

Lowe’s Companies, Inc. (NYSE:LOW) is up nearly 30% year-to-date, but a section of the smart money’s elite isn’t buying. Aggregate interest has fallen, and it’s worth wondering: will Lowe’s burn you?

If you were to ask many of your fellow readers, hedge funds are perceived as useless, outdated financial tools of a forgotten age. Although there are In excess of 8,000 hedge funds in operation today, Insider Monkey focuses on the crème de la crème of this group, close to 525 funds. It is widely held that this group has its hands on most of all hedge funds’ total assets, and by keeping an eye on their highest performing stock picks, we’ve uncovered a number of investment strategies that have historically outperformed the S&P 500. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 33 percentage points in 11 months (find the details here).

Equally as key, positive insider trading sentiment is a second way to analyze the stock market universe. As the old adage goes: there are many stimuli for an executive to downsize shares of his or her company, but just one, very simple reason why they would initiate a purchase. Plenty of empirical studies have demonstrated the useful potential of this tactic if “monkeys” understand what to do (learn more here).

Now that that’s out of the way, it’s important to examine the latest info for Lowe’s Companies, Inc. (NYSE:LOW).

Lowe's Companies, Inc. (NYSE:LOW)

Hedge fund activity in Lowe’s Companies, Inc. (NYSE:LOW)

In preparation for the third quarter, a total of 48 of the hedge funds we track held long positions in this stock, a change of -13% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably.

When using filings from the hedgies we track, Greenhaven Associates, managed by Edgar Wachenheim, holds the largest position in Lowe’s Companies, Inc. (NYSE:LOW). Greenhaven Associates has a $485.2 million position in the stock, comprising 12.9% of its 13F portfolio. On Greenhaven Associates’s heels is Lee Ainslie of Maverick Capital, with a $281.9 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Other peers that are bullish include Ken Griffin’s Citadel Investment Group, David Cohen and Harold Levy’s Iridian Asset Management and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC.

Since Lowe’s Companies, Inc. (NYSE:LOW) has witnessed dropping sentiment from the entirety of the hedge funds we track, logic holds that there were a few funds that elected to cut their entire stakes at the end of the second quarter. Intriguingly, Lou Simpson’s SQ Advisors cut the largest stake of the 450+ funds we watch, totaling close to $69.9 million in stock, and Larry Robbins of Glenview Capital was right behind this move, as the fund said goodbye to about $60.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds at the end of the second quarter.

How are insiders trading Lowe’s Companies, Inc. (NYSE:LOW)?

Legal insider trading, particularly when it’s bullish, is best served when the company we’re looking at has experienced transactions within the past 180 days. Over the latest six-month time frame, Lowe’s Companies, Inc. (NYSE:LOW) has experienced zero unique insiders purchasing, and 8 insider sales (see the details of insider trades here).

We’ll also take a look at the relationship between both of these indicators in other stocks similar to Lowe’s Companies, Inc. (NYSE:LOW). These stocks are Orchard Supply Hardware Stores Corp (NASDAQ:OSH), Builders FirstSource, Inc. (NASDAQ:BLDR), Lumber Liquidators Holdings Inc (NYSE:LL), and The Home Depot, Inc. (NYSE:HD). All of these stocks are in the home improvement stores industry and their market caps match LOW’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Orchard Supply Hardware Stores Corp (NASDAQ:OSH) 0 1
Builders FirstSource, Inc. (NASDAQ:BLDR) 14 0 4
Lumber Liquidators Holdings Inc (NYSE:LL) 20 0 10
The Home Depot, Inc. (NYSE:HD) 53 1 6

Using the results shown by the previously mentioned analyses, regular investors must always keep one eye on hedge fund and insider trading sentiment, and Lowe’s Companies, Inc. (NYSE:LOW) is an important part of this process.

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