Is LPLA A Good Stock To Buy According To Hedge Funds?

In this article we are going to use hedge fund sentiment as a tool and determine whether LPL Financial Holdings Inc (NASDAQ:LPLA) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is LPLA a good stock to buy? Money managers were selling. The number of bullish hedge fund positions fell by 6 in recent months. LPL Financial Holdings Inc (NASDAQ:LPLA) was in 37 hedge funds’ portfolios at the end of September. The all time high for this statistic is 43. Our calculations also showed that LPLA 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.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 check out the new hedge fund action surrounding LPL Financial Holdings Inc (NASDAQ:LPLA).

Do Hedge Funds Think LPLA Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LPLA over the last 21 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in LPL Financial Holdings Inc (NASDAQ:LPLA) was held by Samlyn Capital, which reported holding $255.6 million worth of stock at the end of September. It was followed by Southpoint Capital Advisors with a $111.2 million position. Other investors bullish on the company included First Pacific Advisors LLC, Junto Capital Management, and HG Vora Capital Management. In terms of the portfolio weights assigned to each position Engle Capital allocated the biggest weight to LPL Financial Holdings Inc (NASDAQ:LPLA), around 8.1% of its 13F portfolio. Samlyn Capital is also relatively very bullish on the stock, dishing out 4.6 percent of its 13F equity portfolio to LPLA.

Judging by the fact that LPL Financial Holdings Inc (NASDAQ:LPLA) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that decided to sell off their full holdings last quarter. Intriguingly, Brandon Haley’s Holocene Advisors dropped the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $38.1 million in stock, and Daniel Johnson’s Gillson Capital was right behind this move, as the fund dumped about $15.4 million worth. These moves are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to LPL Financial Holdings Inc (NASDAQ:LPLA). These stocks are Huaneng Power International Inc (NYSE:HNP), Lincoln National Corporation (NYSE:LNC), Voya Financial Inc (NYSE:VOYA), Sealed Air Corporation (NYSE:SEE), Steel Dynamics, Inc. (NASDAQ:STLD), MKS Instruments, Inc. (NASDAQ:MKSI), and OGE Energy Corp. (NYSE:OGE). All of these stocks’ market caps match LPLA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HNP 2 2278 0
LNC 30 410718 -4
VOYA 49 1103956 8
SEE 31 933728 3
STLD 28 459515 -2
MKSI 35 313184 3
OGE 22 215851 -3
Average 28.1 491319 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $491 million. That figure was $830 million in LPLA’s case. Voya Financial Inc (NYSE:VOYA) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 2 bullish hedge fund positions. LPL Financial Holdings Inc (NASDAQ:LPLA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LPLA is 62. 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 gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on LPLA as the stock returned 35.5% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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