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Were Hedge Funds Right About Souring On Louisiana-Pacific Corporation (LPX)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Louisiana-Pacific Corporation (NYSE:LPX).

Is Louisiana-Pacific Corporation (NYSE:LPX) the right investment to pursue these days? The smart money is becoming less hopeful. The number of bullish hedge fund positions shrunk by 1 in recent months. Our calculations also showed that LPX isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Jeffrey Altman Owl Creek

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the latest hedge fund action encompassing Louisiana-Pacific Corporation (NYSE:LPX).

How have hedgies been trading Louisiana-Pacific Corporation (NYSE:LPX)?

At Q2’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LPX over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with LPX Positions

Among these funds, Renaissance Technologies held the most valuable stake in Louisiana-Pacific Corporation (NYSE:LPX), which was worth $77 million at the end of the second quarter. On the second spot was Adage Capital Management which amassed $73.9 million worth of shares. Moreover, Owl Creek Asset Management, Citadel Investment Group, and GLG Partners were also bullish on Louisiana-Pacific Corporation (NYSE:LPX), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Louisiana-Pacific Corporation (NYSE:LPX) has experienced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of funds who sold off their entire stakes last quarter. Intriguingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital cut the largest position of the “upper crust” of funds followed by Insider Monkey, comprising about $9.6 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also dumped its stock, about $1.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Louisiana-Pacific Corporation (NYSE:LPX) but similarly valued. These stocks are LiveRamp Holdings, Inc. (NYSE:RAMP), Ormat Technologies, Inc. (NYSE:ORA), Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), and BridgeBio Pharma, Inc. (NASDAQ:BBIO). This group of stocks’ market values are closest to LPX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RAMP 22 309228 -1
ORA 9 169084 0
HOMB 13 25864 -2
BBIO 14 1069073 14
Average 14.5 393312 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $393 million. That figure was $393 million in LPX’s case. LiveRamp Holdings, Inc. (NYSE:RAMP) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Louisiana-Pacific Corporation (NYSE:LPX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LPX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LPX were disappointed as the stock returned -5.7% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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

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