Should You Buy Lennox International Inc. (LII)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. The second half of 2015 and the first few months of this year was a stressful period for hedge funds. However, things have been taking a turn for the better in the second half of this year. Small-cap stocks which hedge funds are usually overweight outperformed the market by double digits and it may be a good time to pay attention to hedge funds’ picks before it is too late. In this article we are going to analyze the hedge fund sentiment towards Lennox International Inc. (NYSE:LII) .

Is Lennox International Inc. (NYSE:LII) ready to rally soon? Hedge funds are betting on the stock. The number of long hedge fund investments increased by 1 in recent months. LII was in 16 hedge funds’ portfolios at the end of September.  There were 15 hedge funds in our database with LII positions at the end of the previous quarter. At the end of this article we will also compare LII to other stocks including Reinsurance Group of America Inc (NYSE:RGA), Mercadolibre Inc (NASDAQ:MELI), and Liberty Broadband Corp (NASDAQ:LBRDK) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

nikkytok/Shutterstock.com

How have hedgies been trading Lennox International Inc. (NYSE:LII)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a gain of 7% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in LII heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Cliff Asness’ AQR Capital Management has the biggest position in Lennox International Inc. (NYSE:LII), worth close to $42.4 million. On AQR Capital Management’s heels is Andrew Sandler of Sandler Capital Management, with a $14.8 million position; 1.8% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish encompass Jim Simons’ Renaissance Technologies, and Richard Driehaus’ Driehaus Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Lennox International Inc. (NYSE:LII) headfirst. Sandler Capital Management established the biggest position in Lennox International Inc. (NYSE:LII). John Overdeck and David Siegel’s Two Sigma Advisors also made a $11.3 million investment in the stock during the quarter. The following funds were also among the new LII investors: Dmitry Balyasny’s Balyasny Asset Management, D. E. Shaw’s D E Shaw, and Ken Griffin’s Citadel Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lennox International Inc. (NYSE:LII) but similarly valued. We will take a look at Reinsurance Group of America Inc (NYSE:RGA), Mercadolibre Inc (NASDAQ:MELI), Liberty Broadband Corp (NASDAQ:LBRDK), and FMC Corp (NYSE:FMC). This group of stocks’ market valuations match LII’s market valuation.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $1.41 billion. That figure was $100 million in LII’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Reinsurance Group of America Inc (NYSE:RGA) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Lennox International Inc. (NYSE:LII) is even less popular than RGA. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None