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Were Hedge Funds Right About Dumping Linx S.A. (LINX)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Linx S.A. (NYSE:LINX) based on that data.

Linx S.A. (NYSE:LINX) was in 4 hedge funds’ portfolios at the end of the fourth quarter of 2019. LINX investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 5 hedge funds in our database with LINX holdings at the end of the previous quarter. Our calculations also showed that LINX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Jeffrey Talpins of Element Capital

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Linx S.A. (NYSE:LINX).

How are hedge funds trading Linx S.A. (NYSE:LINX)?

At the end of the fourth quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LINX over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Chase Coleman’s Tiger Global Management LLC has the most valuable position in Linx S.A. (NYSE:LINX), worth close to $29.3 million, amounting to 0.2% of its total 13F portfolio. Coming in second is Element Capital Management, managed by Jeffrey Talpins, which holds a $2 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions comprise Ken Griffin’s Citadel Investment Group, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and . In terms of the portfolio weights assigned to each position Element Capital Management allocated the biggest weight to Linx S.A. (NYSE:LINX), around 0.42% of its 13F portfolio. Tiger Global Management LLC is also relatively very bullish on the stock, dishing out 0.16 percent of its 13F equity portfolio to LINX.

Seeing as Linx S.A. (NYSE:LINX) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers who sold off their positions entirely heading into Q4. Intriguingly, Anand Parekh’s Alyeska Investment Group said goodbye to the largest position of the 750 funds tracked by Insider Monkey, totaling an estimated $5.8 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Linx S.A. (NYSE:LINX) but similarly valued. These stocks are Enerplus Corp (NYSE:ERF), InVitae Corporation (NYSE:NVTA), Rent-A-Center Inc (NASDAQ:RCII), and AAR Corp. (NYSE:AIR). This group of stocks’ market valuations are similar to LINX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERF 20 168554 3
NVTA 13 277519 0
RCII 25 435978 -4
AIR 23 123873 3
Average 20.25 251481 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $32 million in LINX’s case. Rent-A-Center Inc (NASDAQ:RCII) is the most popular stock in this table. On the other hand InVitae Corporation (NYSE:NVTA) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Linx S.A. (NYSE:LINX) is even less popular than NVTA. Hedge funds dodged a bullet by taking a bearish stance towards LINX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately LINX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LINX investors were disappointed as the stock returned -60.6% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
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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