Were Hedge Funds Right About Lockheed Martin Corporation (LMT)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Lockheed Martin Corporation (NYSE:LMT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Lockheed Martin Corporation (NYSE:LMT) has seen an increase in hedge fund sentiment of late. Our calculations also showed that LMT 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.

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. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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 we’re going to review the fresh hedge fund action surrounding Lockheed Martin Corporation (NYSE:LMT).

How are hedge funds trading Lockheed Martin Corporation (NYSE:LMT)?

At the end of the first quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the fourth quarter of 2019. On the other hand, there were a total of 35 hedge funds with a bullish position in LMT a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the biggest position in Lockheed Martin Corporation (NYSE:LMT). Adage Capital Management has a $348.2 million position in the stock, comprising 1% of its 13F portfolio. The second most bullish fund manager is GQG Partners, led by Rajiv Jain, holding a $235.1 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass D. E. Shaw’s D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Shanda Asset Management allocated the biggest weight to Lockheed Martin Corporation (NYSE:LMT), around 5.48% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, designating 5.45 percent of its 13F equity portfolio to LMT.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in Lockheed Martin Corporation (NYSE:LMT). Citadel Investment Group had $99 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $67.9 million position during the quarter. The following funds were also among the new LMT investors: Chen Tianqiao’s Shanda Asset Management, Louis Bacon’s Moore Global Investments, and Ray Dalio’s Bridgewater Associates.

Let’s now take a look at hedge fund activity in other stocks similar to Lockheed Martin Corporation (NYSE:LMT). These stocks are GlaxoSmithKline plc (NYSE:GSK), Broadcom Inc (NASDAQ:AVGO), Honeywell International Inc. (NYSE:HON), and Gilead Sciences, Inc. (NASDAQ:GILD). All of these stocks’ market caps resemble LMT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 49.25 hedge funds with bullish positions and the average amount invested in these stocks was $1930 million. That figure was $1506 million in LMT’s case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 27 bullish hedge fund positions. Lockheed Martin Corporation (NYSE:LMT) 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 LMT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LMT were disappointed as the stock returned 8.3% 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.