We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in LivePerson, Inc. (NASDAQ:LPSN)? The smart money sentiment can provide an answer to this question.
Is LivePerson, Inc. (NASDAQ:LPSN) undervalued? Money managers are getting more optimistic. The number of long hedge fund bets advanced by 7 recently. Our calculations also showed that LPSN 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Israel Englander of Millennium 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 we’re going to take a glance at the fresh hedge fund action encompassing LivePerson, Inc. (NASDAQ:LPSN).
How are hedge funds trading LivePerson, Inc. (NASDAQ:LPSN)?
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 44% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in LPSN over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, RGM Capital was the largest shareholder of LivePerson, Inc. (NASDAQ:LPSN), with a stake worth $76.1 million reported as of the end of September. Trailing RGM Capital was Polar Capital, which amassed a stake valued at $45.3 million. Portolan Capital Management, Millennium Management, and Two Sigma 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 RGM Capital allocated the biggest weight to LivePerson, Inc. (NASDAQ:LPSN), around 4.35% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, dishing out 4.21 percent of its 13F equity portfolio to LPSN.
As aggregate interest increased, some big names were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in LivePerson, Inc. (NASDAQ:LPSN). Citadel Investment Group had $1.2 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $0.7 million position during the quarter. The following funds were also among the new LPSN investors: Qing Li’s Sciencast Management, Dmitry Balyasny’s Balyasny Asset Management, and Mika Toikka’s AlphaCrest Capital Management.
Let’s check out hedge fund activity in other stocks similar to LivePerson, Inc. (NASDAQ:LPSN). We will take a look at Crescent Point Energy Corp (NYSE:CPG), Evertec Inc (NYSE:EVTC), Yelp Inc (NYSE:YELP), and Columbia Property Trust Inc (NYSE:CXP). This group of stocks’ market valuations resemble LPSN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPG | 14 | 73177 | 2 |
| EVTC | 19 | 270812 | -7 |
| YELP | 27 | 360550 | -2 |
| CXP | 22 | 123416 | 7 |
| Average | 20.5 | 206989 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $207 million. That figure was $202 million in LPSN’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Crescent Point Energy Corp (NYSE:CPG) is the least popular one with only 14 bullish hedge fund positions. LivePerson, Inc. (NASDAQ:LPSN) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately LPSN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LPSN were disappointed as the stock returned -40.9% 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.
