How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding XPO Logistics Inc (NYSE:XPO) and determine whether hedge funds had an edge regarding this stock.
Is XPO Logistics Inc (NYSE:XPO) ready to rally soon? Prominent investors were taking a bullish view. The number of long hedge fund positions advanced by 4 in recent months. XPO Logistics Inc (NYSE:XPO) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 47. Our calculations also showed that XPO 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.
If you’d ask most stock holders, hedge funds are seen as worthless, old investment tools of yesteryear. While there are greater than 8000 funds in operation at the moment, Our researchers choose to focus on the moguls of this club, about 850 funds. Most estimates calculate that this group of people orchestrate bulk of the hedge fund industry’s total asset base, and by shadowing their unrivaled stock picks, Insider Monkey has revealed several investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Ken Griffin of Citadel Investment Group
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s check out the fresh hedge fund action regarding XPO Logistics Inc (NYSE:XPO).
Hedge fund activity in XPO Logistics Inc (NYSE:XPO)
Heading into the third quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in XPO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Orbis Investment Management held the most valuable stake in XPO Logistics Inc (NYSE:XPO), which was worth $1340.4 million at the end of the third quarter. On the second spot was Spruce House Investment Management which amassed $347.6 million worth of shares. Lyrical Asset Management, MFN Partners, 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 Lansing Management allocated the biggest weight to XPO Logistics Inc (NYSE:XPO), around 13.27% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, dishing out 12.48 percent of its 13F equity portfolio to XPO.
Consequently, key money managers were breaking ground themselves. Electron Capital Partners, managed by Jos Shaver, established the largest position in XPO Logistics Inc (NYSE:XPO). Electron Capital Partners had $26.8 million invested in the company at the end of the quarter. Harry Gail’s Harspring Capital Management also initiated a $18.5 million position during the quarter. The other funds with brand new XPO positions are Ken Grossman and Glen Schneider’s SG Capital Management, Gregg Moskowitz’s Interval Partners, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.
Let’s now review hedge fund activity in other stocks similar to XPO Logistics Inc (NYSE:XPO). These stocks are News Corp (NASDAQ:NWS), The New York Times Company (NYSE:NYT), Aspen Technology, Inc. (NASDAQ:AZPN), Alleghany Corporation (NYSE:Y), News Corp (NASDAQ:NWSA), Genpact Limited (NYSE:G), and Vereit Inc (NYSE:VER). This group of stocks’ market valuations are similar to XPO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWS | 16 | 32230 | 3 |
| NYT | 42 | 1853275 | 9 |
| AZPN | 28 | 878045 | 8 |
| Y | 31 | 270939 | 6 |
| NWSA | 24 | 342184 | -4 |
| G | 29 | 319870 | -5 |
| VER | 23 | 491001 | 5 |
| Average | 27.6 | 598221 | 3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $598 million. That figure was $2294 million in XPO’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 16 bullish hedge fund positions. XPO Logistics Inc (NYSE:XPO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for XPO is 80.7. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on XPO, though not to the same extent, as the stock returned 14.3% since the end of June and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.
