Is Ladenburg Thalmann Financial Services (NYSE:LTS) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Ladenburg Thalmann Financial Services (NYSE:LTS) was in 6 hedge funds’ portfolios at the end of September. LTS investors should pay attention to an increase in hedge fund interest recently. There were 5 hedge funds in our database with LTS holdings at the end of the previous quarter. Our calculations also showed that LTS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing Ladenburg Thalmann Financial Services (NYSE:LTS).
What have hedge funds been doing with Ladenburg Thalmann Financial Services (NYSE:LTS)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LTS over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ladenburg Thalmann Financial Services (NYSE:LTS) was held by Millennium Management, which reported holding $1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $0.7 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Millennium Management allocated the biggest weight to Ladenburg Thalmann Financial Services (NYSE:LTS), around 0.0016% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, setting aside 0.0007 percent of its 13F equity portfolio to LTS.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the biggest position in Ladenburg Thalmann Financial Services (NYSE:LTS). Two Sigma Advisors had $0.1 million invested in the company at the end of the quarter.
Let’s go over hedge fund activity in other stocks similar to Ladenburg Thalmann Financial Services (NYSE:LTS). We will take a look at Clarus Corporation (NASDAQ:CLAR), Limelight Networks, Inc. (NASDAQ:LLNW), CymaBay Therapeutics Inc (NASDAQ:CBAY), and Adverum Biotechnologies, Inc. (NASDAQ:ADVM). All of these stocks’ market caps resemble LTS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLAR | 12 | 47803 | -2 |
| LLNW | 13 | 40097 | 2 |
| CBAY | 21 | 155764 | -3 |
| ADVM | 11 | 83191 | -4 |
| Average | 14.25 | 81714 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $3 million in LTS’s case. CymaBay Therapeutics Inc (NASDAQ:CBAY) is the most popular stock in this table. On the other hand Adverum Biotechnologies, Inc. (NASDAQ:ADVM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Ladenburg Thalmann Financial Services (NYSE:LTS) is even less popular than ADVM. Hedge funds clearly dropped the ball on LTS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on LTS as the stock returned 47.3% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
