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 Lear Corporation (NYSE:LEA) and determine whether hedge funds skillfully traded this stock.
Is Lear Corporation (NYSE:LEA) the right investment to pursue these days? Hedge funds were in a bearish mood. The number of bullish hedge fund positions shrunk by 2 recently. Lear Corporation (NYSE:LEA) was in 32 hedge funds’ portfolios at the end of September. The all time high for this statistic is 44. Our calculations also showed that LEA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 34 hedge funds in our database with LEA holdings at the end of June.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now let’s view the fresh hedge fund action surrounding Lear Corporation (NYSE:LEA).
Do Hedge Funds Think LEA Is A Good Stock To Buy Now?
At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in LEA over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lear Corporation (NYSE:LEA) was held by Pzena Investment Management, which reported holding $811.6 million worth of stock at the end of September. It was followed by Paradice Investment Management with a $93.8 million position. Other investors bullish on the company included Candlestick Capital Management, Atlantic Investment Management, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Atlantic Investment Management allocated the biggest weight to Lear Corporation (NYSE:LEA), around 10.36% of its 13F portfolio. Paradice Investment Management is also relatively very bullish on the stock, dishing out 4.25 percent of its 13F equity portfolio to LEA.
Because Lear Corporation (NYSE:LEA) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds who sold off their entire stakes by the end of the third quarter. Intriguingly, Louis Bacon’s Moore Global Investments dumped the biggest stake of all the hedgies tracked by Insider Monkey, worth an estimated $17.3 million in call options. Mike Vranos’s fund, Ellington, also dropped its call options, about $2.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Lear Corporation (NYSE:LEA) but similarly valued. We will take a look at Banco de Chile (NYSE:BCH), ICL Group Ltd. (NYSE:ICL), Erie Indemnity Company (NASDAQ:ERIE), Ares Capital Corporation (NASDAQ:ARCC), TELUS International (Cda) Inc. (NYSE:TIXT), Assurant, Inc. (NYSE:AIZ), and Churchill Downs Incorporated (NASDAQ:CHDN). This group of stocks’ market caps are similar to LEA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BCH | 8 | 42959 | 1 |
| ICL | 6 | 87041 | 0 |
| ERIE | 13 | 43560 | -2 |
| ARCC | 12 | 94646 | 0 |
| TIXT | 21 | 70748 | 15 |
| AIZ | 28 | 794083 | 2 |
| CHDN | 29 | 616749 | -6 |
| Average | 16.7 | 249969 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.7 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $1191 million in LEA’s case. Churchill Downs Incorporated (NASDAQ:CHDN) is the most popular stock in this table. On the other hand ICL Group Ltd. (NYSE:ICL) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Lear Corporation (NYSE:LEA) is more popular among hedge funds. Our overall hedge fund sentiment score for LEA is 74.8. 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. 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 returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on LEA as the stock returned 7.4% since the end of September (through 1/31) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
