Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Limoneira Company (NASDAQ:LMNR) a bargain? The smart money is getting more bullish. The number of bullish hedge fund positions advanced by 4 recently. Our calculations also showed that LMNR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). LMNR was in 6 hedge funds’ portfolios at the end of the third quarter of 2019. There were 2 hedge funds in our database with LMNR holdings at the end of the previous quarter.
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s view the fresh hedge fund action regarding Limoneira Company (NASDAQ:LMNR).
How are hedge funds trading Limoneira Company (NASDAQ:LMNR)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 200% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in LMNR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Limoneira Company (NASDAQ:LMNR), which was worth $1.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $1.1 million worth of shares. Driehaus Capital, Winton Capital Management, and ExodusPoint Capital 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 Driehaus Capital allocated the biggest weight to Limoneira Company (NASDAQ:LMNR), around 0.02% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to LMNR.
Consequently, specific money managers were breaking ground themselves. Renaissance Technologies, initiated the biggest position in Limoneira Company (NASDAQ:LMNR). Renaissance Technologies had $1.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks similar to Limoneira Company (NASDAQ:LMNR). These stocks are Ranpak Holdings Corp (NYSE:PACK), Anworth Mortgage Asset Corporation (NYSE:ANH), XPEL Inc. (NASDAQ:XPEL), and Computer Programs & Systems, Inc. (NASDAQ:CPSI). This group of stocks’ market caps are closest to LMNR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PACK | 14 | 179385 | -2 |
| ANH | 14 | 30078 | 0 |
| XPEL | 2 | 17793 | 2 |
| CPSI | 12 | 18542 | 0 |
| Average | 10.5 | 61450 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $3 million in LMNR’s case. Ranpak Holdings Corp (NYSE:PACK) is the most popular stock in this table. On the other hand XPEL Inc. (NASDAQ:XPEL) is the least popular one with only 2 bullish hedge fund positions. Limoneira Company (NASDAQ:LMNR) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on LMNR, though not to the same extent, as the stock returned 8% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
