At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards LSB Industries, Inc. (NYSE:LXU).
Is LXU a good stock to buy now? LSB Industries, Inc. (NYSE:LXU) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. LSB Industries, Inc. (NYSE:LXU) was in 7 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 19. 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 for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most shareholders, hedge funds are assumed to be unimportant, old investment vehicles of the past. While there are over 8000 funds in operation at the moment, We look at the top tier of this group, around 850 funds. Most estimates calculate that this group of people oversee the majority of the hedge fund industry’s total capital, and by shadowing their first-class picks, Insider Monkey has unearthed a number of investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Now we’re going to take a gander at the key hedge fund action regarding LSB Industries, Inc. (NYSE:LXU).
What does smart money think about LSB Industries, Inc. (NYSE:LXU)?
Heading into the fourth quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in LXU over the last 21 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Maple Rock Capital, managed by Len Kipp and Xavier Majic, holds the largest position in LSB Industries, Inc. (NYSE:LXU). Maple Rock Capital has a $1.5 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $1.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Israel Englander’s Millennium Management, Chuck Royce’s Royce & Associates and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Maple Rock Capital allocated the biggest weight to LSB Industries, Inc. (NYSE:LXU), around 0.28% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to LXU.
Judging by the fact that LSB Industries, Inc. (NYSE:LXU) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of money managers that slashed their positions entirely by the end of the third quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners cut the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $0.1 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dumped its stock, about $0 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to LSB Industries, Inc. (NYSE:LXU). We will take a look at First Seacoast Bancorp (NASDAQ:FSEA), ECMOHO Limited (NASDAQ:MOHO), inTEST Corporation (NASDAQ:INTT), SilverBow Resorces, Inc. (NYSE:SBOW), SCYNEXIS Inc (NASDAQ:SCYX), TESSCO Technologies, Inc. (NASDAQ:TESS), and SEACOR Marine Holdings Inc. (NYSE:SMHI). This group of stocks’ market valuations match LXU’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.9 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $4 million in LXU’s case. SilverBow Resorces, Inc. (NYSE:SBOW) is the most popular stock in this table. On the other hand ECMOHO Limited (NASDAQ:MOHO) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks LSB Industries, Inc. (NYSE:LXU) is more popular among hedge funds. Our overall hedge fund sentiment score for LXU is 63.1. 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. 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 returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on LXU as the stock returned 68.5% since the end of September (through 12/2) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.