We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Leidos Holdings, Inc. (NYSE:LDOS), and what that likely means for the prospects of the company and its stock.
Is Leidos Holdings, Inc. (NYSE:LDOS) a buy, sell, or hold? The smart money is in an optimistic mood. The number of bullish hedge fund positions inched up by 1 recently. LDOS was in 27 hedge funds’ portfolios at the end of the third quarter of 2016. There were 26 hedge funds in our database with LDOS positions at the end of the previous quarter. At the end of this article we will also compare LDOS to other stocks including ONE Gas Inc (NYSE:OGS), Endo Health Solutions Inc (NASDAQ:ENDP), and First Niagara Financial Group Inc. (NASDAQ:FNFG) to get a better sense of its popularity.
Follow Leidos Holdings Inc. (NYSE:LDOS)
Follow Leidos Holdings Inc. (NYSE:LDOS)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
hywards/Shutterstock.com
How have hedgies been trading Leidos Holdings, Inc. (NYSE:LDOS)?
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 4% from one quarter earlier, and the third-straight quarter in which hedge fund ownership has increased. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Jason Karp’s Tourbillon Capital Partners has the number one position in Leidos Holdings, Inc. (NYSE:LDOS), worth close to $120.1 million, accounting for 2.5% of its total 13F portfolio. Sitting at the No. 2 spot is Southpoint Capital Advisors, led by John Smith Clark, holding a $119.8 million position; the fund has 5.4% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Alan Fournier’s Pennant Capital Management, Doug Silverman and Alexander Klabin’s Senator Investment Group, and Jim Simons’ Renaissance Technologies.
As industry-wide interest jumped, key money managers were breaking ground themselves. Tourbillon Capital Partners created the most outsized position in Leidos Holdings, Inc. (NYSE:LDOS). Southpoint Capital Advisors also made a large new investment in the stock during the quarter. The following funds were also among the new LDOS investors: Pennant Capital Management, Senator Investment Group, and Martin D. Sass’ MD Sass.
Let’s check out hedge fund activity in other stocks similar to Leidos Holdings, Inc. (NYSE:LDOS). These stocks are ONE Gas Inc (NYSE:OGS), Endo Health Solutions Inc (NASDAQ:ENDP), First Niagara Financial Group Inc. (NASDAQ:FNFG), and American Capital Ltd. (NASDAQ:ACAS). All of these stocks’ market caps match LDOS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OGS | 11 | 66906 | -1 |
| ENDP | 32 | 797272 | -4 |
| FNFG | 1 | 4 | -23 |
| ACAS | 28 | 600404 | -6 |
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $644 million in LDOS’s case. Endo Health Solutions Inc (NASDAQ:ENDP) is the most popular stock in this table. On the other hand First Niagara Financial Group Inc. (NASDAQ:FNFG) is the least popular one with only 1 bullish hedge fund positions. Leidos Holdings, Inc. (NYSE:LDOS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ENDP might be a better candidate to consider a long position in.
Disclosure: None
