Was The Smart Money Right About Lam Research Corporation (LRCX)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Lam Research Corporation (NASDAQ:LRCX).

Lam Research Corporation (NASDAQ:LRCX) has seen an increase in activity from the world’s largest hedge funds lately. Lam Research Corporation (NASDAQ:LRCX) was in 58 hedge funds’ portfolios at the end of June. The all time high for this statistic is 62. There were 54 hedge funds in our database with LRCX positions at the end of the first quarter. Our calculations also showed that LRCX isn’t among the 30 most popular stocks among hedge funds (click 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Philippe Laffont of Coatue Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s go over the latest hedge fund action regarding Lam Research Corporation (NASDAQ:LRCX).

Do Hedge Funds Think LRCX Is A Good Stock To Buy Now?

At Q2’s end, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 62 hedge funds with a bullish position in LRCX a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, GQG Partners was the largest shareholder of Lam Research Corporation (NASDAQ:LRCX), with a stake worth $982.6 million reported as of the end of June. Trailing GQG Partners was Fisher Asset Management, which amassed a stake valued at $694 million. Coatue Management, Alkeon Capital Management, and Citadel Investment Group 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 Marlowe Partners allocated the biggest weight to Lam Research Corporation (NASDAQ:LRCX), around 24.66% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, dishing out 8.33 percent of its 13F equity portfolio to LRCX.

As industrywide interest jumped, key hedge funds have jumped into Lam Research Corporation (NASDAQ:LRCX) headfirst. Coatue Management, managed by Philippe Laffont, assembled the largest position in Lam Research Corporation (NASDAQ:LRCX). Coatue Management had $377 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $35.1 million position during the quarter. The other funds with new positions in the stock are Ray Dalio’s Bridgewater Associates, Scott Bessent’s Key Square Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Lam Research Corporation (NASDAQ:LRCX). These stocks are Airbnb, Inc. (NASDAQ:ABNB), British American Tobacco plc (NYSE:BTI), Infosys Limited (NYSE:INFY), Booking Holdings Inc. (NASDAQ:BKNG), PetroChina Company Limited (NYSE:PTR), BP plc (NYSE:BP), and Zoetis Inc (NYSE:ZTS). This group of stocks’ market valuations are similar to LRCX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.1 hedge funds with bullish positions and the average amount invested in these stocks was $2385 million. That figure was $3719 million in LRCX’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 8 bullish hedge fund positions. Lam Research Corporation (NASDAQ:LRCX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LRCX is 64.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately LRCX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LRCX were disappointed as the stock returned -13.2% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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