Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Lexmark International Inc (NYSE:LXK) has unfortunately experienced a decrease in hedge fund sentiment recently. LXK was in 25 hedge funds’ portfolios at the end of the third quarter of 2016. There were 28 hedge funds in our database with LXK 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 United Natural Foods, Inc. (NASDAQ:UNFI), The Medicines Company (NASDAQ:MDCO), and SolarCity Corp (NASDAQ:SCTY) to gather more data points.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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Now, let’s review the new action surrounding Lexmark International Inc (NYSE:LXK).
Hedge fund activity in Lexmark International Inc (NYSE:LXK)
Heading into the fourth quarter of 2016, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, down 11% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Emil Zoellner’s Alpine Associates has the largest position in Lexmark International Inc (NYSE:LXK), worth close to $65.5 million, amounting to 2.4% of its total 13F portfolio. The second most bullish fund manager is Huber Capital Management, led by Joe Huber, holding a $42 million position; 1.7% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions consist of Cliff Asness’s AQR Capital Management, Noam Gottesman’s GLG Partners and Jim Simons’s Renaissance Technologies.
Since Lexmark International Inc (NYSE:LXK) has faced bearish sentiment from the smart money, we can see that there is a sect of fund managers that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Crispin Odey’s Odey Asset Management Group dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $64.5 million in stock, and David Cohen and Harold Levy’s Iridian Asset Management was right behind this move, as the fund dumped about $45.4 million worth of LXK shares. These moves are interesting, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Lexmark International Inc (NYSE:LXK) but similarly valued. These stocks are United Natural Foods, Inc. (NASDAQ:UNFI), The Medicines Company (NASDAQ:MDCO), SolarCity Corp (NASDAQ:SCTY), and Owens & Minor, Inc. (NYSE:OMI). This group of stocks’ market values are similar to LXK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UNFI | 21 | 162679 | 0 |
| MDCO | 27 | 584714 | 1 |
| SCTY | 19 | 82586 | -7 |
| OMI | 13 | 128694 | -3 |
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $240 million. That figure was $304 million in LXK’s case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand Owens & Minor, Inc. (NYSE:OMI) is the least popular one with only 13 bullish hedge fund positions. Lexmark International Inc (NYSE:LXK) 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. In this regard MDCO might be a better candidate to consider a long position.
Disclosure: none.
