There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze La-Z-Boy Incorporated (NYSE:LZB).
La-Z-Boy Incorporated (NYSE:LZB) has seen an increase in enthusiasm from smart money of late. LZB was in 17 hedge funds’ portfolios at the end of the third quarter of 2018. There were 15 hedge funds in our database with LZB holdings at the end of the previous quarter. Our calculations also showed that lzb isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to review the latest hedge fund action encompassing La-Z-Boy Incorporated (NYSE:LZB).
Hedge fund activity in La-Z-Boy Incorporated (NYSE:LZB)
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LZB over the last 13 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in La-Z-Boy Incorporated (NYSE:LZB) was held by Royce & Associates, which reported holding $32.2 million worth of stock at the end of September. It was followed by GAMCO Investors with a $12.9 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and D E Shaw.
As aggregate interest increased, specific money managers have jumped into La-Z-Boy Incorporated (NYSE:LZB) headfirst. Millennium Management, managed by Israel Englander, created the biggest position in La-Z-Boy Incorporated (NYSE:LZB). Millennium Management had $4.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $1.5 million investment in the stock during the quarter. The following funds were also among the new LZB investors: Brandon Haley’s Holocene Advisors and Philippe Laffont’s Coatue Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as La-Z-Boy Incorporated (NYSE:LZB) but similarly valued. These stocks are Eaton Vance Ltd Duration Income Fund (NYSE:EVV), Quotient Technology Inc. (NYSE:QUOT), Tronox Limited (NYSE:TROX), and WAVE Life Sciences Ltd. (NASDAQ:WVE). This group of stocks’ market caps match LZB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EVV | 5 | 60562 | -1 |
| QUOT | 13 | 159832 | -4 |
| TROX | 30 | 247325 | -1 |
| WVE | 22 | 574017 | 6 |
| Average | 17.5 | 260434 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $97 million in LZB’s case. Tronox Limited (NYSE:TROX) is the most popular stock in this table. On the other hand Eaton Vance Ltd Duration Income Fund (NYSE:EVV) is the least popular one with only 5 bullish hedge fund positions. La-Z-Boy Incorporated (NYSE:LZB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TROX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
