Were Hedge Funds Right Dumping Lockheed Martin Corporation (LMT)?

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. Keeping this in mind, let’s take a look at whether Lockheed Martin Corporation (NYSE:LMT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Lockheed Martin Corporation (NYSE:LMT) has seen a decrease in hedge fund sentiment lately. Our calculations also showed that LMT 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).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. 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. 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. With all of this in mind let’s view the fresh hedge fund action regarding Lockheed Martin Corporation (NYSE:LMT).

Hedge fund activity in Lockheed Martin Corporation (NYSE:LMT)

At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the third quarter of 2019. On the other hand, there were a total of 42 hedge funds with a bullish position in LMT a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is LMT A Good Stock To Buy?

The largest stake in Lockheed Martin Corporation (NYSE:LMT) was held by Two Sigma Advisors, which reported holding $370.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $282.5 million position. Other investors bullish on the company included GQG Partners, Adage Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Ariose Capital allocated the biggest weight to Lockheed Martin Corporation (NYSE:LMT), around 7.4% of its 13F portfolio. Heard Capital is also relatively very bullish on the stock, dishing out 5.13 percent of its 13F equity portfolio to LMT.

Due to the fact that Lockheed Martin Corporation (NYSE:LMT) has witnessed falling interest from the smart money, it’s easy to see that there is a sect of fund managers who were dropping their entire stakes heading into Q4. Intriguingly, Aaron Cowen’s Suvretta Capital Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, valued at about $156.4 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $52.8 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Lockheed Martin Corporation (NYSE:LMT). These stocks are Danaher Corporation (NYSE:DHR), Charter Communications, Inc. (NASDAQ:CHTR), Starbucks Corporation (NASDAQ:SBUX), and Diageo plc (NYSE:DEO). This group of stocks’ market valuations resemble LMT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DHR 61 2354152 -1
CHTR 65 9013923 -5
SBUX 66 5063838 7
DEO 17 794917 -5
Average 52.25 4306708 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.25 hedge funds with bullish positions and the average amount invested in these stocks was $4307 million. That figure was $1777 million in LMT’s case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 17 bullish hedge fund positions. Lockheed Martin Corporation (NYSE:LMT) is not the least popular stock in this group but hedge fund interest is still below average. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on LMT, though not to the same extent, as the stock returned -0.9% during the same time period and outperformed the market.
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.