Were Hedge Funds Right About Piling Into LKQ Corporation?

Does LKQ Corporation (Nasdaq: LKQ) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net their stock picks have been generating superior risk-adjusted returns on average over the years.

LKQ Corporation has seen a decrease in activity from the world’s largest hedge funds of late, though overall hedge fund sentiment towards the stock is still near its all-time high which was reached at the end of September. This is usually a bullish sign. For example, hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all-time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed similar performances from Twilio, MSCI and Progressive Corporation (PGR); these stocks returned 37%, 29%, and 27% respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management Inc. (BAM), Atlassian Corporation Plc (TEAM), RCLMTBVAR, and CRH hit all-time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5 months of this year.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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