Is Landstar System, Inc. (LSTR) Going to Burn These Hedge Funds?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Landstar System, Inc. (NASDAQ:LSTR) based on that data.

Landstar System, Inc. (NASDAQ:LSTR) shareholders have witnessed a decrease in hedge fund interest recently. Our calculations also showed that LSTR isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 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 58 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.

Donald Sussman of Paloma Partners

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action encompassing Landstar System, Inc. (NASDAQ:LSTR).

What have hedge funds been doing with Landstar System, Inc. (NASDAQ:LSTR)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LSTR over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Landstar System, Inc. (NASDAQ:LSTR), which was worth $53.3 million at the end of the third quarter. On the second spot was GLG Partners which amassed $18.8 million worth of shares. Scopus Asset Management, AQR Capital Management, and Citadel Investment Group 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 Scopus Asset Management allocated the biggest weight to Landstar System, Inc. (NASDAQ:LSTR), around 1.61% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.73 percent of its 13F equity portfolio to LSTR.

Because Landstar System, Inc. (NASDAQ:LSTR) has witnessed bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their full holdings heading into Q4. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp dumped the largest investment of all the hedgies followed by Insider Monkey, totaling an estimated $1.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $1.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Landstar System, Inc. (NASDAQ:LSTR). These stocks are Spire Inc. (NYSE:SR), National Oilwell Varco, Inc. (NYSE:NOV), AppFolio Inc (NASDAQ:APPF), and Iovance Biotherapeutics, Inc. (NASDAQ:IOVA). This group of stocks’ market values match LSTR’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $533 million. That figure was $157 million in LSTR’s case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Spire Inc. (NYSE:SR) is the least popular one with only 13 bullish hedge fund positions. Landstar System, Inc. (NASDAQ:LSTR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately LSTR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LSTR investors were disappointed as the stock returned 17.7% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.