Is Luby’s (LUB) A Good Stock To Buy Now?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Luby’s, Inc. (NYSE:LUB) changed recently.

Is Luby’s (LUB) a good stock to buy now? LUB was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 6. LUB has seen an increase in hedge fund interest of late. There were 4 hedge funds in our database with LUB positions at the end of the second quarter. Our calculations also showed that LUB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gifford Combs - Dalton Investments

Gifford Combs of Dalton Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a look at the latest hedge fund action encompassing Luby’s, Inc. (NYSE:LUB).

What does smart money think about Luby’s, Inc. (NYSE:LUB)?

Heading into the fourth quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in LUB a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Luby’s, Inc. (NYSE:LUB) was held by Bandera Partners, which reported holding $8.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $1.3 million position. Other investors bullish on the company included Millennium Management, Ancora Advisors, and Dalton Investments. In terms of the portfolio weights assigned to each position Bandera Partners allocated the biggest weight to Luby’s, Inc. (NYSE:LUB), around 5.34% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to LUB.

As one would reasonably expect, key money managers have jumped into Luby’s, Inc. (NYSE:LUB) headfirst. Millennium Management, managed by Israel Englander, created the most valuable position in Luby’s, Inc. (NYSE:LUB). Millennium Management had $0.1 million invested in the company at the end of the quarter. Frederick DiSanto’s Ancora Advisors also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gifford Combs’s Dalton Investments.

Let’s check out hedge fund activity in other stocks similar to Luby’s, Inc. (NYSE:LUB). We will take a look at Pacific Mercantile Bancorp (NASDAQ:PMBC), Sachem Capital Corp. (NYSE:SACH), BG Staffing Inc (NYSE:BGSF), Immutep Limited (NASDAQ:IMMP), Borr Drilling Limited (NYSE:BORR), OP Bancorp (NASDAQ:OPBK), and Bank7 Corp. (NASDAQ:BSVN). This group of stocks’ market valuations are similar to LUB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PMBC 6 17474 -2
SACH 1 153 -1
BGSF 8 3378 3
IMMP 1 66 0
BORR 6 1637 1
OPBK 4 5883 0
BSVN 2 474 0
Average 4 4152 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $10 million in LUB’s case. BG Staffing Inc (NYSE:BGSF) is the most popular stock in this table. On the other hand Sachem Capital Corp. (NYSE:SACH) is the least popular one with only 1 bullish hedge fund positions. Luby’s, Inc. (NYSE:LUB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LUB is 59.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately LUB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LUB were disappointed as the stock returned 7.7% since the end of September (through 11/27) 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.

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