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Lam Research Corporation (LRCX) vs. Hedge Fund Favorites in 2019

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Lam Research Corporation (NASDAQ:LRCX).

Lam Research Corporation (NASDAQ:LRCX) was in 47 hedge funds’ portfolios at the end of September. LRCX has seen an increase in enthusiasm from smart money recently. There were 35 hedge funds in our database with LRCX positions at the end of the previous quarter. Our calculations also showed that LRCX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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. Now let’s go over the new hedge fund action regarding Lam Research Corporation (NASDAQ:LRCX).

Hedge fund activity in Lam Research Corporation (NASDAQ:LRCX)

Heading into the fourth quarter of 2019, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 34% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LRCX over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is LRCX A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Lam Research Corporation (NASDAQ:LRCX), with a stake worth $406.5 million reported as of the end of September. Trailing AQR Capital Management was Two Sigma Advisors, which amassed a stake valued at $207 million. Arrowstreet Capital, Lansdowne Partners, and Alkeon Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Marlowe Partners allocated the biggest weight to Lam Research Corporation (NASDAQ:LRCX), around 9.4% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, setting aside 6.81 percent of its 13F equity portfolio to LRCX.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Lam Research Corporation (NASDAQ:LRCX). Arrowstreet Capital had $194.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $48.2 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Brandon Haley’s Holocene Advisors, and Paul Marshall and Ian Wace’s Marshall Wace.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Lam Research Corporation (NASDAQ:LRCX) but similarly valued. We will take a look at General Mills, Inc. (NYSE:GIS), Cognizant Technology Solutions Corp (NASDAQ:CTSH), eBay Inc (NASDAQ:EBAY), and The Hershey Company (NYSE:HSY). This group of stocks’ market caps resemble LRCX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GIS 35 916081 -4
CTSH 40 2368649 7
EBAY 53 3488246 6
HSY 33 1103825 6
Average 40.25 1969200 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1969 million. That figure was $2130 million in LRCX’s case. eBay Inc (NASDAQ:EBAY) is the most popular stock in this table. On the other hand The Hershey Company (NYSE:HSY) is the least popular one with only 33 bullish hedge fund positions. Lam Research Corporation (NASDAQ:LRCX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on LRCX as the stock returned 120.9% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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