In this article we will take a look at whether hedge funds think Livent Corporation (NYSE:LTHM) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Livent Corporation (NYSE:LTHM) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that LTHM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 S&P 500 ETFs by more than 58 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 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 stocks that are in our short portfolio.
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the key hedge fund action regarding Livent Corporation (NYSE:LTHM).
How are hedge funds trading Livent Corporation (NYSE:LTHM)?
Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in LTHM 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.
More specifically, Joho Capital was the largest shareholder of Livent Corporation (NYSE:LTHM), with a stake worth $19.2 million reported as of the end of September. Trailing Joho Capital was Prescott Group Capital Management, which amassed a stake valued at $4.6 million. Royce & Associates, MFP Investors, 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 Joho Capital allocated the biggest weight to Livent Corporation (NYSE:LTHM), around 4.97% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, dishing out 2.3 percent of its 13F equity portfolio to LTHM.
Because Livent Corporation (NYSE:LTHM) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of funds that decided to sell off their entire stakes in the first quarter. Intriguingly, Amy Minella’s Cardinal Capital said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, comprising close to $29 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund cut about $1.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the first quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Livent Corporation (NYSE:LTHM) but similarly valued. These stocks are The Cheesecake Factory Incorporated (NASDAQ:CAKE), Waddell & Reed Financial, Inc. (NYSE:WDR), Newmark Group, Inc. (NASDAQ:NMRK), and Saul Centers Inc (NYSE:BFS). This group of stocks’ market values resemble LTHM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAKE | 22 | 65962 | -5 |
| WDR | 22 | 73802 | 1 |
| NMRK | 24 | 66647 | 1 |
| BFS | 7 | 25019 | -1 |
| Average | 18.75 | 57858 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $35 million in LTHM’s case. Newmark Group, Inc. (NASDAQ:NMRK) is the most popular stock in this table. On the other hand Saul Centers Inc (NYSE:BFS) is the least popular one with only 7 bullish hedge fund positions. Livent Corporation (NYSE:LTHM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately LTHM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LTHM investors were disappointed as the stock returned 13% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Follow Livent Corp. (NYSE:LTHM)
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Disclosure: None. This article was originally published at Insider Monkey.
