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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Lear Corporation (NYSE:LEA) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Lear Corporation (NYSE:LEA) investors should pay attention to a decrease in hedge fund sentiment recently. Our calculations also showed that LEA 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.
Alexander Roepers of Atlantic Investment 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 let’s take a glance at the key hedge fund action surrounding Lear Corporation (NYSE:LEA).
Hedge fund activity in Lear Corporation (NYSE:LEA)
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LEA over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Lear Corporation (NYSE:LEA), which was worth $624.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $148.3 million worth of shares. Paradice Investment Management, Balyasny Asset Management, and Atlantic Investment Management 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 Atlantic Investment Management allocated the biggest weight to Lear Corporation (NYSE:LEA), around 9.63% of its 13F portfolio. Paradice Investment Management is also relatively very bullish on the stock, earmarking 5.02 percent of its 13F equity portfolio to LEA.
Seeing as Lear Corporation (NYSE:LEA) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few funds who sold off their positions entirely in the third quarter. Interestingly, Israel Englander’s Millennium Management cut the biggest position of all the hedgies tracked by Insider Monkey, comprising an estimated $44.5 million in call options, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $23.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 10 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Lear Corporation (NYSE:LEA). These stocks are Ares Management L.P. (NYSE:ARES), Aspen Technology, Inc. (NASDAQ:AZPN), Juniper Networks, Inc. (NYSE:JNPR), and China Southern Airlines Co Ltd (NYSE:ZNH). All of these stocks’ market caps resemble LEA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARES | 18 | 235883 | 1 |
| AZPN | 37 | 1277921 | 6 |
| JNPR | 37 | 734511 | 5 |
| ZNH | 3 | 13907 | 1 |
| Average | 23.75 | 565556 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $566 million. That figure was $1007 million in LEA’s case. Aspen Technology, Inc. (NASDAQ:AZPN) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 3 bullish hedge fund positions. Lear Corporation (NYSE:LEA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 but beat the market by 3.2 percentage points. Unfortunately LEA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LEA were disappointed as the stock returned -37.3% during the same time period 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 many of these stocks already outperformed the market so far this year.
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.
