Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Lockheed Martin Corporation (NYSE:LMT) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is Lockheed Martin Corporation (NYSE:LMT) worth your attention right now? Prominent investors are becoming less hopeful. The number of long hedge fund bets decreased by 2 recently. Our calculations also showed that LMT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
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. With all of this in mind let’s take a look at the latest hedge fund action surrounding Lockheed Martin Corporation (NYSE:LMT).
How have hedgies been trading Lockheed Martin Corporation (NYSE:LMT)?
Heading into the fourth quarter of 2019, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the second quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in LMT a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, John Overdeck and David Siegel’s Two Sigma Advisors has the biggest position in Lockheed Martin Corporation (NYSE:LMT), worth close to $367.9 million, comprising 0.9% of its total 13F portfolio. Coming in second is Phill Gross and Robert Atchinson of Adage Capital Management, with a $333.9 million position; 0.8% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism contain Cliff Asness’s AQR Capital Management, Aaron Cowen’s Suvretta Capital Management and Rajiv Jain’s GQG Partners. In terms of the portfolio weights assigned to each position Grisanti Brown & Partners allocated the biggest weight to Lockheed Martin Corporation (NYSE:LMT), around 4.58% of its 13F portfolio. Suvretta Capital Management is also relatively very bullish on the stock, setting aside 4.04 percent of its 13F equity portfolio to LMT.
Judging by the fact that Lockheed Martin Corporation (NYSE:LMT) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that slashed their entire stakes last quarter. It’s worth mentioning that Alexander Mitchell’s Scopus Asset Management cut the biggest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $29 million in stock. Louis Bacon’s fund, Moore Global Investments, also sold off its stock, about $16.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lockheed Martin Corporation (NYSE:LMT) but similarly valued. We will take a look at Broadcom Inc (NASDAQ:AVGO), BHP Billiton plc (NYSE:BBL), Eli Lilly and Company (NYSE:LLY), and GlaxoSmithKline plc (NYSE:GSK). This group of stocks’ market caps are similar to LMT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVGO | 54 | 2515014 | 1 |
| BBL | 21 | 970915 | 1 |
| LLY | 41 | 1489505 | -2 |
| GSK | 26 | 1891012 | 1 |
| Average | 35.5 | 1716612 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1717 million. That figure was $1783 million in LMT’s case. Broadcom Inc (NASDAQ:AVGO) is the most popular stock in this table. On the other hand BHP Billiton plc (NYSE:BBL) is the least popular one with only 21 bullish hedge fund positions. Lockheed Martin Corporation (NYSE:LMT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on LMT as the stock returned 53.5% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
