In this article we will check out the progression of hedge fund sentiment towards Linx S.A. (NYSE:LINX) and determine whether it is a good investment 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.
Linx S.A. (NYSE:LINX) was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. LINX has seen an increase in activity from the world’s largest hedge funds lately. There were 4 hedge funds in our database with LINX positions at the end of the previous quarter. Our calculations also showed that LINX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 58 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jeffrey Talpins of Element Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the key hedge fund action encompassing Linx S.A. (NYSE:LINX).
Hedge fund activity in Linx S.A. (NYSE:LINX)
At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LINX over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Tiger Global Management LLC held the most valuable stake in Linx S.A. (NYSE:LINX), which was worth $10.9 million at the end of the third quarter. On the second spot was Element Capital Management which amassed $0.4 million worth of shares. Renaissance Technologies, Springbok Capital, 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 Element Capital Management allocated the biggest weight to Linx S.A. (NYSE:LINX), around 0.34% of its 13F portfolio. Tiger Global Management LLC is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to LINX.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Renaissance Technologies, established the largest position in Linx S.A. (NYSE:LINX). Renaissance Technologies had $0.2 million invested in the company at the end of the quarter.
Let’s also examine hedge fund activity in other stocks similar to Linx S.A. (NYSE:LINX). These stocks are Range Resources Corp. (NYSE:RRC), Revlon Inc (NYSE:REV), Kforce Inc. (NASDAQ:KFRC), and Petmed Express Inc (NASDAQ:PETS). All of these stocks’ market caps match LINX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RRC | 23 | 154075 | -6 |
| REV | 36 | 178239 | -2 |
| KFRC | 15 | 46137 | -7 |
| PETS | 18 | 112993 | -1 |
| Average | 23 | 122861 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $12 million in LINX’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Kforce Inc. (NASDAQ:KFRC) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Linx S.A. (NYSE:LINX) is even less popular than KFRC. Hedge funds dodged a bullet by taking a bearish stance towards LINX. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately LINX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); LINX investors were disappointed as the stock returned 15.5% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
