Is LSB Industries, Inc. (LXU) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about LSB Industries, Inc. (NYSE:LXU).

LSB Industries, Inc. (NYSE:LXU) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. LXU was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with LXU positions at the end of the previous quarter. Our calculations also showed that LXU 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.

In the eyes of most market participants, hedge funds are perceived as unimportant, outdated investment tools of yesteryear. While there are greater than 8000 funds with their doors open at present, Our researchers look at the crème de la crème of this club, about 750 funds. These investment experts control bulk of the smart money’s total capital, and by tracking their unrivaled picks, Insider Monkey has found several investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year 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 .

Chuck Royce

Chuck Royce of Royce & Associates

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 we’re going to review the recent hedge fund action regarding LSB Industries, Inc. (NYSE:LXU).

Hedge fund activity in LSB Industries, Inc. (NYSE:LXU)

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in LXU a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in LSB Industries, Inc. (NYSE:LXU) was held by Tontine Asset Management, which reported holding $7.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $2.1 million position. Other investors bullish on the company included Royce & Associates, PDT Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Tontine Asset Management allocated the biggest weight to LSB Industries, Inc. (NYSE:LXU), around 1.05% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to LXU.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified LXU as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks similar to LSB Industries, Inc. (NYSE:LXU). We will take a look at Points International Ltd (NASDAQ:PCOM), Barnes & Noble Education Inc (NYSE:BNED), Centric Brands Inc. (NASDAQ:CTRC), and Axovant Gene Therapies Ltd. (NASDAQ:AXGT). All of these stocks’ market caps are closest to LXU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PCOM 6 11297 0
BNED 9 4523 -7
CTRC 2 152 1
AXGT 6 10140 0
Average 5.75 6528 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $11 million in LXU’s case. Barnes & Noble Education Inc (NYSE:BNED) is the most popular stock in this table. On the other hand Centric Brands Inc. (NASDAQ:CTRC) is the least popular one with only 2 bullish hedge fund positions. LSB Industries, Inc. (NYSE:LXU) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 LXU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LXU investors were disappointed as the stock returned -23.6% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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