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 (10 coronavirus predictions). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was XPO Logistics Inc (NYSE:XPO).
Is XPO Logistics Inc (NYSE:XPO) a buy, sell, or hold? Prominent investors are getting more bullish. The number of long hedge fund positions rose by 6 lately. Our calculations also showed that XPO 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).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that 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.
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now we’re going to view the key hedge fund action encompassing XPO Logistics Inc (NYSE:XPO).
Hedge fund activity in XPO Logistics Inc (NYSE:XPO)
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. By comparison, 44 hedge funds held shares or bullish call options in XPO a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in XPO Logistics Inc (NYSE:XPO) was held by Orbis Investment Management, which reported holding $1493.2 million worth of stock at the end of September. It was followed by Spruce House Investment Management with a $944.4 million position. Other investors bullish on the company included Lyrical Asset Management, MFN Partners, and Black-and-White Capital. In terms of the portfolio weights assigned to each position Spruce House Investment Management allocated the biggest weight to XPO Logistics Inc (NYSE:XPO), around 30.83% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, designating 11.5 percent of its 13F equity portfolio to XPO.
As industrywide interest jumped, some big names have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the biggest position in XPO Logistics Inc (NYSE:XPO). Point72 Asset Management had $5 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also made a $2.2 million investment in the stock during the quarter. The other funds with brand new XPO positions are John Overdeck and David Siegel’s Two Sigma Advisors, Jinghua Yan’s TwinBeech Capital, and Richard Driehaus’s Driehaus Capital.
Let’s now review hedge fund activity in other stocks similar to XPO Logistics Inc (NYSE:XPO). We will take a look at Canopy Growth Corporation (NYSE:CGC), Woodward Inc (NASDAQ:WWD), Guardant Health, Inc. (NASDAQ:GH), and Robert Half International Inc. (NYSE:RHI). This group of stocks’ market caps resemble XPO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CGC | 14 | 42349 | 5 |
| WWD | 22 | 298847 | -3 |
| GH | 29 | 639870 | 4 |
| RHI | 23 | 550331 | -1 |
| Average | 22 | 382849 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $2831 million in XPO’s case. Guardant Health, Inc. (NASDAQ:GH) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks XPO Logistics Inc (NYSE:XPO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately XPO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on XPO were disappointed as the stock returned -31.2% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
