Is XPO Logistics Inc (XPO) A Good Stock To Buy?

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 XPO Logistics Inc (NYSE:XPO) based on that data.

XPO Logistics Inc (NYSE:XPO) investors should be aware of an increase in enthusiasm from smart money in recent months. XPO was in 36 hedge funds’ portfolios at the end of the first quarter of 2020. There were 32 hedge funds in our database with XPO positions at the end of the previous quarter. Our calculations also showed that XPO 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Seth Klarman of Baupost Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. With all of this in mind let’s check out the key hedge fund action surrounding XPO Logistics Inc (NYSE:XPO).

How have hedgies been trading XPO Logistics Inc (NYSE:XPO)?

At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in XPO over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in XPO Logistics Inc (NYSE:XPO) was held by Orbis Investment Management, which reported holding $870.4 million worth of stock at the end of September. It was followed by Spruce House Investment Management with a $432.3 million position. Other investors bullish on the company included Lyrical Asset Management, MFN Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Spruce House Investment Management allocated the biggest weight to XPO Logistics Inc (NYSE:XPO), around 27.3% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, setting aside 14.18 percent of its 13F equity portfolio to XPO.

As one would reasonably expect, key money managers have jumped into XPO Logistics Inc (NYSE:XPO) headfirst. Baupost Group, managed by Seth Klarman, established the most outsized position in XPO Logistics Inc (NYSE:XPO). Baupost Group had $41.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $10.3 million investment in the stock during the quarter. The following funds were also among the new XPO investors: Marc Majzner’s Clearline Capital, D. E. Shaw’s D E Shaw, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now review hedge fund activity in other stocks similar to XPO Logistics Inc (NYSE:XPO). These stocks are FTI Consulting, Inc. (NYSE:FCN), Santander Consumer USA Holdings Inc (NYSE:SC), Nielsen Holdings plc (NYSE:NLSN), and MKS Instruments, Inc. (NASDAQ:MKSI). This group of stocks’ market valuations are similar to XPO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $1720 million in XPO’s case. Nielsen Holdings plc (NYSE:NLSN) is the most popular stock in this table. On the other hand FTI Consulting, Inc. (NYSE:FCN) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks XPO Logistics Inc (NYSE:XPO) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on XPO as the stock returned 61.7% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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