Is LSB Industries, Inc. (LXU) Going to Burn These Hedge Funds?

Is LSB Industries, Inc. (NYSE:LXU) ready to rally soon? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets stayed the same which is a slightly negative development in our experience

If you’d ask most shareholders, hedge funds are viewed as worthless, old investment tools of the past. While there are greater than 8000 funds in operation at the moment, we look at the moguls of this group, around 450 funds. Most estimates calculate that this group oversees most of all hedge funds’ total capital, and by tracking their highest performing equity investments, we have unsheathed a few investment strategies that have historically beaten the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as beneficial, optimistic insider trading activity is another way to parse down the world of equities. Just as you’d expect, there are many motivations for an executive to get rid of shares of his or her company, but just one, very obvious reason why they would behave bullishly. Plenty of empirical studies have demonstrated the useful potential of this tactic if shareholders understand where to look (learn more here).

With these “truths” under our belt, it’s important to take a look at the latest action regarding LSB Industries, Inc. (NYSE:LXU).

What have hedge funds been doing with LSB Industries, Inc. (NYSE:LXU)?

At Q1’s end, a total of 13 of the hedge funds we track held long positions in this stock, a change of 0% from one quarter earlier. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes significantly.

Of the funds we track, Chuck Royce’s Royce & Associates had the most valuable position in LSB Industries, Inc. (NYSE:LXU), worth close to $39.6 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Martin Whitman of Third Avenue Management, with a $34.5 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other hedgies that are bullish include D. E. Shaw’s D E Shaw, Jim Simons’s Renaissance Technologies and Israel Englander’s Millennium Management.

Because LSB Industries, Inc. (NYSE:LXU) has faced a declination in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers that elected to cut their positions entirely last quarter. At the top of the heap, Philip Hempleman’s Ardsley Partners sold off the biggest stake of the “upper crust” of funds we watch, worth close to $1.1 million in stock., and Peter Algert and Kevin Coldiron of Algert Coldiron Investors was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

How are insiders trading LSB Industries, Inc. (NYSE:LXU)?

Bullish insider trading is best served when the company in question has experienced transactions within the past six months. Over the last half-year time period, LSB Industries, Inc. (NYSE:LXU) has seen zero unique insiders buying, and 8 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to LSB Industries, Inc. (NYSE:LXU). These stocks are Balchem Corporation (NASDAQ:BCPC), Solazyme Inc (NASDAQ:SZYM), FutureFuel Corp. (NYSE:FF), Rentech, Inc. (NYSEAMEX:RTK), and A. Schulman Inc (NASDAQ:SHLM). This group of stocks are in the chemicals – major diversified industry and their market caps are similar to LXU’s market cap.