We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Lam Research Corporation (NASDAQ:LRCX) and determine whether hedge funds skillfully traded this stock.
Is Lam Research Corporation (NASDAQ:LRCX) an outstanding investment right now? Hedge funds were in an optimistic mood. The number of long hedge fund bets went up by 8 recently. Lam Research Corporation (NASDAQ:LRCX) was in 62 hedge funds’ portfolios at the end of June. The all time high for this statistics is 56. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LRCX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Philippe Laffont of Coatue Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a peek at the recent hedge fund action regarding Lam Research Corporation (NASDAQ:LRCX).
How are hedge funds trading Lam Research Corporation (NASDAQ:LRCX)?
At Q2’s end, a total of 62 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards LRCX over the last 20 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Lam Research Corporation (NASDAQ:LRCX) was held by Coatue Management, which reported holding $308 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $269.7 million position. Other investors bullish on the company included AQR Capital Management, Alkeon Capital Management, and Lansdowne Partners. In terms of the portfolio weights assigned to each position Marlowe Partners allocated the biggest weight to Lam Research Corporation (NASDAQ:LRCX), around 13.26% of its 13F portfolio. Heard Capital is also relatively very bullish on the stock, designating 9.99 percent of its 13F equity portfolio to LRCX.
As aggregate interest increased, key hedge funds were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Lam Research Corporation (NASDAQ:LRCX). Holocene Advisors had $160.2 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $6.6 million investment in the stock during the quarter. The other funds with brand new LRCX positions are Benjamin A. Smith’s Laurion Capital Management, Ravee Mehta’s Nishkama Capital, and Joshua Nash’s Ulysses Management.
Let’s check out hedge fund activity in other stocks similar to Lam Research Corporation (NASDAQ:LRCX). We will take a look at The Progressive Corporation (NYSE:PGR), Square, Inc. (NYSE:SQ), Relx PLC (NYSE:RELX), Analog Devices, Inc. (NASDAQ:ADI), Westpac Banking Corporation (NYSE:WBK), ConocoPhillips (NYSE:COP), and Norfolk Southern Corp. (NYSE:NSC). All of these stocks’ market caps resemble LRCX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PGR | 50 | 1147531 | -1 |
| SQ | 66 | 3487480 | 10 |
| RELX | 6 | 118963 | 1 |
| ADI | 49 | 2849471 | 4 |
| WBK | 4 | 28400 | -5 |
| COP | 44 | 912521 | -10 |
| NSC | 47 | 867199 | -4 |
| Average | 38 | 1344509 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $1345 million. That figure was $2538 million in LRCX’s case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 bullish hedge fund positions. Lam Research Corporation (NASDAQ:LRCX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LRCX is 86.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately LRCX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LRCX were disappointed as the stock returned 8.5% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
