Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 LogMeIn Inc (NASDAQ:LOGM).
LogMeIn Inc (NASDAQ:LOGM) was in 31 hedge funds’ portfolios at the end of December. LOGM has experienced a decrease in enthusiasm from smart money recently. There were 32 hedge funds in our database with LOGM holdings at the end of the previous quarter. Our calculations also showed that LOGM 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).
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 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.
Paul Singer of Elliott Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 take a look at the fresh hedge fund action encompassing LogMeIn Inc (NASDAQ:LOGM).
How are hedge funds trading LogMeIn Inc (NASDAQ:LOGM)?
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in LOGM 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.
The largest stake in LogMeIn Inc (NASDAQ:LOGM) was held by Elliott Management, which reported holding $116.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $58.1 million position. Other investors bullish on the company included Greenhouse Funds, Paradice Investment Management, and Melqart Asset Management. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to LogMeIn Inc (NASDAQ:LOGM), around 7.86% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, setting aside 3.61 percent of its 13F equity portfolio to LOGM.
Because LogMeIn Inc (NASDAQ:LOGM) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their full holdings in the third quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, comprising about $13.1 million in stock, and Jerome L. Simon’s Lonestar Capital Management was right behind this move, as the fund cut about $7.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to LogMeIn Inc (NASDAQ:LOGM). These stocks are FTI Consulting, Inc. (NYSE:FCN), Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), Southwest Gas Corporation (NYSE:SWX), and Stifel Financial Corp. (NYSE:SF). This group of stocks’ market valuations match LOGM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FCN | 21 | 164212 | 0 |
| OLLI | 28 | 170863 | 5 |
| SWX | 23 | 200768 | 1 |
| SF | 15 | 148704 | 1 |
| Average | 21.75 | 171137 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $504 million in LOGM’s case. Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) is the most popular stock in this table. On the other hand Stifel Financial Corp. (NYSE:SF) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks LogMeIn Inc (NASDAQ:LOGM) 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 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on LOGM as the stock returned -5.8% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
