Was The Smart Money Right About Lockheed Martin Corporation (LMT)?

Reymerlyn Martin

In this article we are going to use hedge fund sentiment as a tool and determine whether Lockheed Martin Corporation (NYSE:LMT) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Lockheed Martin Corporation (NYSE:LMT) shareholders have witnessed a decrease in hedge fund interest of late. Lockheed Martin Corporation (NYSE:LMT) was in 53 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 55. Our calculations also showed that LMT isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

David Siegel of Two Sigma Advisors
David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to take a gander at the recent hedge fund action encompassing Lockheed Martin Corporation (NYSE:LMT).

What have hedge funds been doing with Lockheed Martin Corporation (NYSE:LMT)?

At Q2's end, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LMT over the last 20 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, GQG Partners, managed by Rajiv Jain, holds the biggest position in Lockheed Martin Corporation (NYSE:LMT). GQG Partners has a $310.8 million position in the stock, comprising 1.4% of its 13F portfolio. Coming in second is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $247.4 million position; 0.7% of its 13F portfolio is allocated to the stock. Other peers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, D. E. Shaw's D E Shaw and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Heard Capital allocated the biggest weight to Lockheed Martin Corporation (NYSE:LMT), around 7.59% of its 13F portfolio. Stevens Capital Management is also relatively very bullish on the stock, designating 3.42 percent of its 13F equity portfolio to LMT.

Because Lockheed Martin Corporation (NYSE:LMT) has faced falling interest from hedge fund managers, it's safe to say that there lies a certain "tier" of hedgies who sold off their full holdings last quarter. At the top of the heap, Steve Cohen's Point72 Asset Management dumped the largest stake of the 750 funds watched by Insider Monkey, comprising close to $67.9 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also sold off its stock, about $34 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lockheed Martin Corporation (NYSE:LMT) but similarly valued. We will take a look at GlaxoSmithKline plc (NYSE:GSK), Lowe's Companies, Inc. (NYSE:LOW), Honeywell International Inc. (NYSE:HON), TOTAL SE (NYSE:TOT), Gilead Sciences, Inc. (NASDAQ:GILD), Royal Bank of Canada (NYSE:RY), and United Parcel Service, Inc. (NYSE:UPS). All of these stocks' market caps resemble LMT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSK,28,2068711,1 LOW,89,6589304,18 HON,50,1447569,6 TOT,19,861496,7 GILD,68,2286230,-8 RY,16,237643,0 UPS,37,781926,-11 Average,43.9,2038983,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.9 hedge funds with bullish positions and the average amount invested in these stocks was $2039 million. That figure was $1554 million in LMT's case. Lowe's Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 16 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. Our overall hedge fund sentiment score for LMT is 57.3. 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 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 30% in 2020 through October 23rd and beat the market by 21 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 3.2% since the end of June (through 10/23) 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.

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

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