Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Lowe’s Companies, Inc. (NYSE:LOW).
Lowe’s Companies, Inc. (NYSE:LOW) has seen an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that LOW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Andreas Halvorsen of Viking Global
We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the key hedge fund action regarding Lowe’s Companies, Inc. (NYSE:LOW).
How have hedgies been trading Lowe’s Companies, Inc. (NYSE:LOW)?
At Q4’s end, a total of 77 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 1% from one quarter earlier. By comparison, 53 hedge funds held shares or bullish call options in LOW a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lowe’s Companies, Inc. (NYSE:LOW) was held by D E Shaw, which reported holding $1045.1 million worth of stock at the end of September. It was followed by Pershing Square with a $1031.5 million position. Other investors bullish on the company included Viking Global, Two Sigma Advisors, and OZ Management. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Lowe’s Companies, Inc. (NYSE:LOW), around 15.74% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, earmarking 9.03 percent of its 13F equity portfolio to LOW.
Consequently, some big names were leading the bulls’ herd. Suvretta Capital Management, managed by Aaron Cowen, established the largest position in Lowe’s Companies, Inc. (NYSE:LOW). Suvretta Capital Management had $142.3 million invested in the company at the end of the quarter. John Khoury’s Long Pond Capital also made a $87.4 million investment in the stock during the quarter. The following funds were also among the new LOW investors: Hyder Ahmad’s Broad Peak Investment Holdings, Jacob Mitchell’s Antipodes Partners, and Louis Bacon’s Moore Global Investments.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lowe’s Companies, Inc. (NYSE:LOW) but similarly valued. We will take a look at Booking Holdings Inc. (NASDAQ:BKNG), Fidelity National Information Services Inc. (NYSE:FIS), Sony Corporation (NYSE:SNE), and Morgan Stanley (NYSE:MS). This group of stocks’ market values are similar to LOW’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BKNG | 74 | 5578745 | -13 |
| FIS | 105 | 8073588 | 10 |
| SNE | 26 | 761509 | -1 |
| MS | 60 | 3846065 | -8 |
| Average | 66.25 | 4564977 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 66.25 hedge funds with bullish positions and the average amount invested in these stocks was $4565 million. That figure was $5413 million in LOW’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Sony Corporation (NYSE:SNE) is the least popular one with only 26 bullish hedge fund positions. Lowe’s Companies, Inc. (NYSE:LOW) 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. Unfortunately LOW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LOW were disappointed as the stock returned -20.2% 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
