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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Lockheed Martin Corporation (NYSE:LMT).
Lockheed Martin Corporation (NYSE:LMT) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that LMT 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
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. Now we’re going to analyze the key hedge fund action surrounding Lockheed Martin Corporation (NYSE:LMT).
What have hedge funds been doing with Lockheed Martin Corporation (NYSE:LMT)?
At Q4’s end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in LMT over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Two Sigma Advisors held the most valuable stake in Lockheed Martin Corporation (NYSE:LMT), which was worth $370.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $282.5 million worth of shares. GQG Partners, Adage Capital Management, and D E Shaw 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 Ariose Capital allocated the biggest weight to Lockheed Martin Corporation (NYSE:LMT), around 7.4% of its 13F portfolio. Heard Capital is also relatively very bullish on the stock, setting aside 5.13 percent of its 13F equity portfolio to LMT.
Because Lockheed Martin Corporation (NYSE:LMT) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers who sold off their entire stakes in the third quarter. It’s worth mentioning that Aaron Cowen’s Suvretta Capital Management dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $156.4 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dropped its stock, about $52.8 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Lockheed Martin Corporation (NYSE:LMT) but similarly valued. These stocks are Danaher Corporation (NYSE:DHR), Charter Communications, Inc. (NASDAQ:CHTR), Starbucks Corporation (NASDAQ:SBUX), and Diageo plc (NYSE:DEO). This group of stocks’ market valuations are similar to LMT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DHR | 61 | 2354152 | -1 |
| CHTR | 65 | 9013923 | -5 |
| SBUX | 66 | 5063838 | 7 |
| DEO | 17 | 794917 | -5 |
| Average | 52.25 | 4306708 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 52.25 hedge funds with bullish positions and the average amount invested in these stocks was $4307 million. That figure was $1777 million in LMT’s case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 17 bullish hedge fund positions. Lockheed Martin Corporation (NYSE:LMT) is not the least popular stock in this group but hedge fund interest is still below average. 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 beat the market by 1.9 percentage points. A small number of hedge funds were also right about betting on LMT as the stock returned -9% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
