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Lincoln Electric Holdings, Inc. (LECO): Are Hedge Funds Right About This Stock?

Is Lincoln Electric Holdings, Inc. (NASDAQ:LECO) a good bet 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 Lincoln Electric Holdings, Inc. (NASDAQ:LECO) the right investment to pursue these days? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund positions were cut by 6 recently. Our calculations also showed that LECO 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.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the fresh hedge fund action surrounding Lincoln Electric Holdings, Inc. (NASDAQ:LECO).

What have hedge funds been doing with Lincoln Electric Holdings, Inc. (NASDAQ:LECO)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LECO over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Lincoln Electric Holdings, Inc. (NASDAQ:LECO) was held by Royce & Associates, which reported holding $90.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $85.8 million position. Other investors bullish on the company included GLG Partners, Point72 Asset Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Lincoln Electric Holdings, Inc. (NASDAQ:LECO), around 0.84% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, earmarking 0.75 percent of its 13F equity portfolio to LECO.

Judging by the fact that Lincoln Electric Holdings, Inc. (NASDAQ:LECO) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their positions entirely heading into Q4. Intriguingly, Renaissance Technologies said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth about $13.8 million in call options. Alexander Mitchell’s fund, Scopus Asset Management, also said goodbye to its call options, about $8.2 million worth. These moves are interesting, as total hedge fund interest fell by 6 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Lincoln Electric Holdings, Inc. (NASDAQ:LECO) but similarly valued. These stocks are The Hanover Insurance Group, Inc. (NYSE:THG), Exelixis, Inc. (NASDAQ:EXEL), Planet Fitness Inc (NYSE:PLNT), and Gerdau SA (NYSE:GGB). This group of stocks’ market values are similar to LECO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
THG 25 272433 5
EXEL 27 681846 6
PLNT 34 525492 -4
GGB 9 95401 2
Average 23.75 393793 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $394 million. That figure was $256 million in LECO’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 9 bullish hedge fund positions. Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on LECO, though not to the same extent, as the stock returned 6.3% during the first two months of the fourth quarter and outperformed the market.

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

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