In the wake of a better-than-expected performance for the just-completed quarter, Lindsay Corporation (NYSE:LNN) surged over 10% today to as high as $91.67 per share. The irrigation systems maker posted a net profit of $12.9 million, or $1.10 per share, compared to $16.5 million, or $1.28 per share, in year-ago quarter, on revenues of $160.7 million, down from $169.9 million. Though both the topline and bottom line of the company’s third quarter which ended May 31 decreased compared to the same quarter in 2014, they beat consensus as analysts were expecting an EPS of $0.81 on revenues of $153.7 million. Lindsay Corporation (NYSE:LNN) shares have slid 4.36% from the start of the year to yesterday’s close, and decreased 5.75% in the past 12 months excluding today’s surge. Furthermore, fewer hedge funds among those tracked by Insider Monkey had long positions on the stock at the end of the first quarter of the year compared to the final quarter of 2014.
First, a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy – which identifies the best small-cap stock picks of the best hedge fund managers – returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy, you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 144% since the launch of our small-cap strategy compared to less than 60% for the S&P 500 (see the details).
Additionally, Insider Monkey tracks insider sentiment in the form of sales or purchases of stock. These transactions tell us whether the very people who are managing the company are confident enough in their company to buy its shares. In the case of Lindsay Corporation (NYSE:LNN), President for Infrastructure, Barry Ruffalo, purchased 644 shares at the start of the year. No sales were recorded for the first two quarters of 2015.
Keeping this in mind, let’s go over the fresh hedge fund action surrounding Lindsay Corporation (NYSE:LNN).
Hedge fund activity in Lindsay Corporation (NYSE:LNN)
At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 18% from one quarter earlier. Total value of holdings decreased to $108.64 million by the end of the first quarter, down 11.64% from $122.95 million the previous quarter. This decline is offset, however, by an 11.07% decrease in the company’s share price from January 2 to March 31.
Chuck Royce‘s Royce & Associates had the most valuable position in Lindsay Corporation (NYSE:LNN), worth close to $60.3 million or 790,282 shares, amounting to 0.2% of its total 13F portfolio. Coming in second is Joel Greenblatt of Gotham Asset Management, with a $17.4 million position in 228,458 shares; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds with similar optimism encompass Ian Simm’s Impax Asset Management, Jim Simons’s Renaissance Technologies and Ken Griffin’s Citadel Investment Group.
Because Lindsay Corporation (NYSE:LNN) has faced falling interest from the aggregate hedge fund industry, we can see that there were a few hedgies who were dropping their full holdings in first quarter. It’s worth mentioning that David Gallo‘s Valinor Management LLC cut the largest position of all the hedgies followed by Insider Monkey: 132,238 shares valued at about $11.3 million. Israel Englander’s fund, Millennium Management, also cut its 36,189 shares worth about $3.1 million. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in first quarter.
Despite the stock’s lackluster performance over the last 12 months and year-to-date, some may argue that the better-than-expected third quarter is a good sign for Lindsay Corporation. In fact, the market is reacting this way evidenced by the stock’s surge today. However, we see that the number of hedge funds with long positions in the company has decreased by the end of the first quarter. This is generally a bearish sign in our experience. Nonetheless, it should be noted that the decrease in total value of holdings was generally offset by the stock’s decline in the first quarter. Even so, with the lack of strong bullish signs in favor of the company, we can’t recommend a buy and maintain a neutral outlook on Lindsay Corporation (NYSE:LNN).
Disclosure: None
