Were Hedge Funds Right About Loading Up On XPO Logistics Inc (XPO)?

In this article we are going to use hedge fund sentiment as a tool and determine whether XPO Logistics Inc (NYSE:XPO) 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 XPO Logistics Inc (NYSE:XPO) the right pick for your portfolio? Hedge funds were turning bullish. The number of long hedge fund bets increased by 4 recently. XPO Logistics Inc (NYSE:XPO) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 47. Our calculations also showed that XPO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 36 hedge funds in our database with XPO positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

BAUPOST GROUP Seth Klarman

Seth Klarman of Baupost Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to check out the new hedge fund action regarding XPO Logistics Inc (NYSE:XPO).

Hedge fund activity in XPO Logistics Inc (NYSE:XPO)

At the end of June, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in XPO over the last 20 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.

Is XPO A Good Stock To Buy?

More specifically, Orbis Investment Management was the largest shareholder of XPO Logistics Inc (NYSE:XPO), with a stake worth $1340.4 million reported as of the end of June. Trailing Orbis Investment Management was Spruce House Investment Management, which amassed a stake valued at $347.6 million. Lyrical Asset Management, MFN Partners, and Citadel Investment Group 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 Lansing Management allocated the biggest weight to XPO Logistics Inc (NYSE:XPO), around 13.27% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, dishing out 12.48 percent of its 13F equity portfolio to XPO.

As industrywide interest jumped, key hedge funds have jumped into XPO Logistics Inc (NYSE:XPO) headfirst. Electron Capital Partners, managed by Jos Shaver, initiated the most outsized position in XPO Logistics Inc (NYSE:XPO). Electron Capital Partners had $26.8 million invested in the company at the end of the quarter. Harry Gail’s Harspring Capital Management also made a $18.5 million investment in the stock during the quarter. The following funds were also among the new XPO investors: Ken Grossman and Glen Schneider’s SG Capital Management, Gregg Moskowitz’s Interval Partners, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as XPO Logistics Inc (NYSE:XPO) but similarly valued. These stocks are News Corp (NASDAQ:NWS), The New York Times Company (NYSE:NYT), Aspen Technology, Inc. (NASDAQ:AZPN), Alleghany Corporation (NYSE:Y), News Corp (NASDAQ:NWSA), Genpact Limited (NYSE:G), and Vereit Inc (NYSE:VER). All of these stocks’ market caps match XPO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWS 16 32230 3
NYT 42 1853275 9
AZPN 28 878045 8
Y 31 270939 6
NWSA 24 342184 -4
G 29 319870 -5
VER 23 491001 5
Average 27.6 598221 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $598 million. That figure was $2294 million in XPO’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 16 bullish hedge fund positions. XPO Logistics Inc (NYSE:XPO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for XPO is 80.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on XPO as the stock returned 16.5% since the end of Q2 (through 10/30) 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.