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. Keeping this in mind, let’s analyze whether Lincoln National Corporation (NYSE:LNC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Lincoln National Corporation (NYSE:LNC) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that LNC 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).
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 was able to identify in advance a select group of hedge fund holdings that 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.
David E. Shaw of D.E. Shaw
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. With all of this in mind let’s review the recent hedge fund action surrounding Lincoln National Corporation (NYSE:LNC).
What does smart money think about Lincoln National Corporation (NYSE:LNC)?
At Q4’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in LNC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lincoln National Corporation (NYSE:LNC) was held by Lyrical Asset Management, which reported holding $295.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $218.8 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position East Side Capital (RR Partners) allocated the biggest weight to Lincoln National Corporation (NYSE:LNC), around 8.04% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, designating 5.78 percent of its 13F equity portfolio to LNC.
As one would reasonably expect, key money managers have been driving this bullishness. BlueMar Capital Management, managed by David Rodriguez-Fraile, assembled the most valuable position in Lincoln National Corporation (NYSE:LNC). BlueMar Capital Management had $6.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $3 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Paul Tudor Jones’s Tudor Investment Corp, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s check out hedge fund activity in other stocks similar to Lincoln National Corporation (NYSE:LNC). We will take a look at Godaddy Inc (NYSE:GDDY), Tyler Technologies, Inc. (NYSE:TYL), EPAM Systems Inc (NYSE:EPAM), and Molson Coors Beverage Company (NYSE:TAP). This group of stocks’ market valuations resemble LNC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GDDY | 51 | 2626449 | 0 |
| TYL | 21 | 528540 | -10 |
| EPAM | 28 | 324342 | 0 |
| TAP | 31 | 403494 | 5 |
| Average | 32.75 | 970706 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $971 million. That figure was $1213 million in LNC’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand Tyler Technologies, Inc. (NYSE:TYL) is the least popular one with only 21 bullish hedge fund positions. Lincoln National Corporation (NYSE:LNC) 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 LNC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LNC were disappointed as the stock returned -63% 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.
