Hedge Funds Aren’t Done Selling L3Harris Technologies, Inc. (LHX)

In this article we will check out the progression of hedge fund sentiment towards L3Harris Technologies, Inc. (NYSE:LHX) 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.

L3Harris Technologies, Inc. (NYSE:LHX) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that LHX 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 44 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.

Ken Heebner of Capital Growth Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. 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 new hedge fund action regarding L3Harris Technologies, Inc. (NYSE:LHX).

How are hedge funds trading L3Harris Technologies, Inc. (NYSE:LHX)?

At Q1’s end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LHX over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in L3Harris Technologies, Inc. (NYSE:LHX), which was worth $354.6 million at the end of the third quarter. On the second spot was Soroban Capital Partners which amassed $232.8 million worth of shares. Palestra Capital Management, Iridian Asset Management, and Holocene Advisors 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 SAYA Management allocated the biggest weight to L3Harris Technologies, Inc. (NYSE:LHX), around 16.2% of its 13F portfolio. Palestra Capital Management is also relatively very bullish on the stock, setting aside 7.22 percent of its 13F equity portfolio to LHX.

Judging by the fact that L3Harris Technologies, Inc. (NYSE:LHX) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few money managers that slashed their full holdings last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, worth close to $101.2 million in stock, and Renaissance Technologies was right behind this move, as the fund dropped about $65.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to L3Harris Technologies, Inc. (NYSE:LHX). We will take a look at Banco Santander, S.A. (NYSE:SAN), Honda Motor Co Ltd (NYSE:HMC), America Movil SAB de CV (NYSE:AMX), and Banco Santander (Brasil) SA (NYSE:BSBR). This group of stocks’ market caps are closest to LHX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $1594 million in LHX’s case. Banco Santander, S.A. (NYSE:SAN) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks L3Harris Technologies, Inc. (NYSE:LHX) is more popular among hedge funds. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately LHX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LHX were disappointed as the stock returned 10.7% 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 in 2020.

Disclosure: None. This article was originally published at Insider Monkey.