Is Leucadia National Corp. (LUK) A Good Stock To Buy?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Is Leucadia National Corp. (NYSE:LUK) ready to rally soon? Prominent investors are getting less optimistic. The number of long hedge fund bets shrunk by 3 recently. LUK was in 27 hedge funds’ portfolios at the end of the third quarter of 2015. There were 30 hedge funds in our database with LUK positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Barrick Gold Corporation (USA) (NYSE:ABX), HCC Insurance Holdings, Inc. (NYSE:HCC), and Willis Group Holdings PLC (NYSE:WSH) to gather more data points.

To most shareholders, hedge funds are assumed to be underperforming, outdated financial vehicles of the past. While there are more than 8000 funds with their doors open today, We choose to focus on the top tier of this club, approximately 700 funds. These money managers manage the majority of the smart money’s total asset base, and by tailing their unrivaled picks, Insider Monkey has unearthed a number of investment strategies that have historically defeated the broader indices. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Now, let’s review the new action surrounding Leucadia National Corp. (NYSE:LUK).

What does the smart money think about Leucadia National Corp. (NYSE:LUK)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fairholme (FAIRX), managed by Bruce Berkowitz, holds the largest position in Leucadia National Corp. (NYSE:LUK). Fairholme (FAIRX) has an $206.8 million position in the stock, comprising 6% of its 13F portfolio. The second largest stake is held by First Pacific Advisors LLC, led by Robert Rodriguez and Steven Romick, holding an $184.6 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain William Crowley, William Harker, and Stephen Blass’s Ashe Capital, Michael Lowenstein’s Kensico Capital and Allan Mecham and Ben Raybould’s Arlington Value Capital.

Due to the fact that Leucadia National Corp. (NYSE:LUK) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds that slashed their entire stakes heading into Q4. It’s worth mentioning that Cliff Asness’ AQR Capital Management cut the biggest stake of the 700 funds watched by Insider Monkey, worth an estimated $4.7 million in stock. George Soros’ Soros Fund Management, also sold off its stock, about $4.1 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Leucadia National Corp. (NYSE:LUK) but similarly valued. We will take a look at Barrick Gold Corporation (USA) (NYSE:ABX), HCC Insurance Holdings, Inc. (NYSE:HCC), Willis Group Holdings PLC (NYSE:WSH), and News Corp (NASDAQ:NWSA). This group of stocks’ market values resemble LUK’s market value.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1.29 billion. That figure was $748 million in LUK’s case. Barrick Gold Corporation (USA) (NYSE:ABX) is the most popular stock in this table with a total of 40 funds disclosing bullish positions. On the other hand Willis Group Holdings PLC (NYSE:WSH) is the least popular one with 27 funds reporting stakes. Compared to these stocks, Leucadia National Corp. (NYSE:LUK) is even less popular than WSH. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.