Were Hedge Funds Wrong About L3Harris Technologies, Inc. (LHX)?

In this article we will check out the progression of hedge fund sentiment towards L3Harris Technologies, Inc. (NYSE:LHX) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

L3Harris Technologies, Inc. (NYSE:LHX) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. L3Harris Technologies, Inc. (NYSE:LHX) was in 50 hedge funds’ portfolios at the end of June. The all time high for this statistics is 51. Our calculations also showed that LHX 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).

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

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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. Keeping this in mind let’s analyze the recent hedge fund action surrounding L3Harris Technologies, Inc. (NYSE:LHX).

What does smart money think about L3Harris Technologies, Inc. (NYSE:LHX)?

At the end of June, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LHX over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Palestra Capital Management held the most valuable stake in L3Harris Technologies, Inc. (NYSE:LHX), which was worth $182.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $167.6 million worth of shares. Millennium Management, Iridian Asset Management, and Renaissance Technologies 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 SAYA Management allocated the biggest weight to L3Harris Technologies, Inc. (NYSE:LHX), around 15.07% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, designating 4.99 percent of its 13F equity portfolio to LHX.

As industrywide interest jumped, specific money managers have been driving this bullishness. Renaissance Technologies, created the most valuable position in L3Harris Technologies, Inc. (NYSE:LHX). Renaissance Technologies had $92.2 million invested in the company at the end of the quarter. Robert Boucai’s Newbrook Capital Advisors also made a $71.3 million investment in the stock during the quarter. The other funds with brand new LHX positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Paul Tudor Jones’s Tudor Investment Corp, and Charles Davidson and Joseph Jacobs’s Wexford Capital.

Let’s also examine hedge fund activity in other stocks similar to L3Harris Technologies, Inc. (NYSE:LHX). We will take a look at Monster Beverage Corp (NASDAQ:MNST), General Motors Company (NYSE:GM), Exelon Corporation (NASDAQ:EXC), Veeva Systems Inc (NYSE:VEEV), Eaton Corporation plc (NYSE:ETN), Las Vegas Sands Corp. (NYSE:LVS), and Canadian Pacific Railway Limited (NYSE:CP). This group of stocks’ market values match LHX’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $1737 million. That figure was $1313 million in LHX’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Exelon Corporation (NYSE:EXC) is the least popular one with only 30 bullish hedge fund positions. L3Harris Technologies, Inc. (NYSE:LHX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LHX is 65.1. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately LHX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LHX were disappointed as the stock returned 1.7% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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