Should You Buy Lindsay Corporation (LNN)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Lindsay Corporation (NYSE:LNN) and determine whether hedge funds skillfully traded this stock.

Lindsay Corporation (NYSE:LNN) has seen an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that LNN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the new hedge fund action surrounding Lindsay Corporation (NYSE:LNN).

What have hedge funds been doing with Lindsay Corporation (NYSE:LNN)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in LNN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Lindsay Corporation (NYSE:LNN), which was worth $78.5 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $58.1 million worth of shares. SG Capital Management, GAMCO Investors, and D E Shaw 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 SG Capital Management allocated the biggest weight to Lindsay Corporation (NYSE:LNN), around 7.49% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 1.07 percent of its 13F equity portfolio to LNN.

As aggregate interest increased, some big names have jumped into Lindsay Corporation (NYSE:LNN) headfirst. Millennium Management, managed by Israel Englander, created the biggest position in Lindsay Corporation (NYSE:LNN). Millennium Management had $1.1 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also initiated a $0.5 million position during the quarter. The only other fund with a brand new LNN position is Peter Muller’s PDT Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lindsay Corporation (NYSE:LNN) but similarly valued. These stocks are Enerpac Tool Group Corp. (NYSE:EPAC), Radware Ltd. (NASDAQ:RDWR), Materialise NV (NASDAQ:MTLS), and CorVel Corporation (NASDAQ:CRVL). All of these stocks’ market caps resemble LNN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $170 million in LNN’s case. Enerpac Tool Group Corp. (NYSE:EPAC) is the most popular stock in this table. On the other hand Materialise NV (NASDAQ:MTLS) is the least popular one with only 3 bullish hedge fund positions. Lindsay Corporation (NYSE:LNN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately LNN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LNN were disappointed as the stock returned 1.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.