Is La-Z-Boy Incorporated (NYSE:LZB) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
La-Z-Boy Incorporated (NYSE:LZB) investors should pay attention to an increase in hedge fund sentiment lately. LZB was in 23 hedge funds’ portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with LZB positions at the end of the previous quarter. Our calculations also showed that LZB 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.
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 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. 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.
Chuck Royce of Royce & Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action surrounding La-Z-Boy Incorporated (NYSE:LZB).
Hedge fund activity in La-Z-Boy Incorporated (NYSE:LZB)
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in LZB a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the number one position in La-Z-Boy Incorporated (NYSE:LZB), worth close to $18.5 million, amounting to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Mario Gabelli of GAMCO Investors, with a $12 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism include David E. Shaw’s D E Shaw, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to La-Z-Boy Incorporated (NYSE:LZB), around 0.38% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to LZB.
As aggregate interest increased, key hedge funds were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, assembled the biggest position in La-Z-Boy Incorporated (NYSE:LZB). Marshall Wace had $6.5 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $1 million investment in the stock during the quarter. The following funds were also among the new LZB investors: Ken Griffin’s Citadel Investment Group, Hoon Kim’s Quantinno Capital, and Claes Fornell’s CSat Investment Advisory.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as La-Z-Boy Incorporated (NYSE:LZB) but similarly valued. We will take a look at Park National Corporation (NYSEAMEX:PRK), Chesapeake Utilities Corporation (NYSE:CPK), Safety Insurance Group, Inc. (NASDAQ:SAFT), and James River Group Holdings Ltd (NASDAQ:JRVR). This group of stocks’ market valuations are similar to LZB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRK | 8 | 15270 | 0 |
| CPK | 8 | 42923 | -1 |
| SAFT | 9 | 47348 | -1 |
| JRVR | 10 | 52366 | 0 |
| Average | 8.75 | 39477 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $93 million in LZB’s case. James River Group Holdings Ltd (NASDAQ:JRVR) is the most popular stock in this table. On the other hand Park National Corporation (NYSEAMEX:PRK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks La-Z-Boy Incorporated (NYSE:LZB) is more popular among hedge funds. 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. Unfortunately LZB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LZB were disappointed as the stock returned -5.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
