This Metric Says You Are Smart to Sell Lear Corporation (LEA)

Lear Corporation (NYSE:LEA) investors should be aware of a decrease in hedge fund sentiment in recent months.

If you’d ask most market participants, hedge funds are viewed as slow, old financial tools of the past. While there are more than 8000 funds in operation today, we choose to focus on the upper echelon of this club, about 450 funds. Most estimates calculate that this group oversees most of the smart money’s total asset base, and by watching their highest performing stock picks, we have determined a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as important, optimistic insider trading activity is another way to parse down the investments you’re interested in. Obviously, there are many incentives for an upper level exec to downsize shares of his or her company, but just one, very obvious reason why they would buy. Several empirical studies have demonstrated the impressive potential of this tactic if piggybackers understand where to look (learn more here).

Keeping this in mind, let’s take a peek at the key action encompassing Lear Corporation (NYSE:LEA).

Hedge fund activity in Lear Corporation (NYSE:LEA)

In preparation for this quarter, a total of 39 of the hedge funds we track were bullish in this stock, a change of -5% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes significantly.

When looking at the hedgies we track, Marcato Capital Management, managed by Richard McGuire, holds the biggest position in Lear Corporation (NYSE:LEA). Marcato Capital Management has a $310.2 million position in the stock, comprising 42.8% of its 13F portfolio. Coming in second is David Gallo of Valinor Management LLC, with a $122.2 million position; the fund has 5.3% of its 13F portfolio invested in the stock. Remaining hedge funds that are bullish include Ken Griffin’s Citadel Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management and D. E. Shaw’s D E Shaw.

Since Lear Corporation (NYSE:LEA) has faced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies who were dropping their full holdings heading into Q2. It’s worth mentioning that Doug Silverman and Alexander Klabin’s Senator Investment Group said goodbye to the biggest position of the “upper crust” of funds we watch, totaling an estimated $70.3 million in stock., and Carl Goldsmith and Scott Klein of Beach Point Capital Management was right behind this move, as the fund said goodbye to about $13.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q2.

How have insiders been trading Lear Corporation (NYSE:LEA)?

Insider purchases made by high-level executives is best served when the company in focus has experienced transactions within the past 180 days. Over the last six-month time period, Lear Corporation (NYSE:LEA) has experienced zero unique insiders buying, and 4 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Lear Corporation (NYSE:LEA). These stocks are Autoliv Inc. (NYSE:ALV), TRW Automotive Holdings Corp. (NYSE:TRW), LKQ Corporation (NASDAQ:LKQ), WABCO Holdings Inc. (NYSE:WBC), and Allison Transmission Holdings Inc (NYSE:ALSN). This group of stocks are the members of the auto parts industry and their market caps are closest to LEA’s market cap.