Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that 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. 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. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards L3Harris Technologies, Inc. (NASDAQ:LHX).
L3Harris Technologies, Inc. (NASDAQ:LHX) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that LHX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 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 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a peek at the latest hedge fund action encompassing L3Harris Technologies, Inc. (NASDAQ:LHX).
What does smart money think about L3Harris Technologies, Inc. (NASDAQ:LHX)?
Heading into the first quarter of 2020, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in LHX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in L3Harris Technologies, Inc. (NASDAQ:LHX) was held by Citadel Investment Group, which reported holding $675.7 million worth of stock at the end of September. It was followed by Millennium Management with a $167.8 million position. Other investors bullish on the company included Holocene Advisors, Iridian Asset Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to L3Harris Technologies, Inc. (NASDAQ:LHX), around 19.94% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, designating 5.41 percent of its 13F equity portfolio to LHX.
Due to the fact that L3Harris Technologies, Inc. (NASDAQ:LHX) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers who sold off their entire stakes by the end of the third quarter. Intriguingly, John Smith Clark’s Southpoint Capital Advisors said goodbye to the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $93.9 million in stock. Zach Schreiber’s fund, Point State Capital, also dropped its stock, about $39.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as L3Harris Technologies, Inc. (NASDAQ:LHX) but similarly valued. These stocks are SYSCO Corporation (NYSE:SYY), National Grid plc (NYSE:NGG), Sempra Energy (NYSE:SRE), and Baxter International Inc. (NYSE:BAX). This group of stocks’ market caps are closest to LHX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SYY | 28 | 3021435 | 3 |
| NGG | 6 | 439511 | -4 |
| SRE | 35 | 717221 | 4 |
| BAX | 47 | 3519863 | 8 |
| Average | 29 | 1924508 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1925 million. That figure was $2542 million in LHX’s case. Baxter International Inc. (NYSE:BAX) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks L3Harris Technologies, Inc. (NASDAQ:LHX) is more popular among hedge funds. 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 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on LHX as the stock returned -5.7% so far in Q1 (through March 9th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
