Was The Smart Money Right About Linde plc (LIN)?

Abigail Fisher
·6 min read

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 Linde plc (NYSE:LIN).

Is Linde plc (NYSE:LIN) a safe investment today? Investors who are in the know were in a bearish mood. The number of bullish hedge fund positions went down by 1 recently. Linde plc (NYSE:LIN) was in 52 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 53. Our calculations also showed that LIN 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). There were 53 hedge funds in our database with LIN positions at the end of the first quarter. 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bernard Horn of Polaris Capital Management

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. Keeping this in mind let's take a look at the new hedge fund action regarding Linde plc (NYSE:LIN).

How have hedgies been trading Linde plc (NYSE:LIN)?

At the end of the second quarter, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in LIN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Ako Capital, managed by Nicolai Tangen, holds the number one position in Linde plc (NYSE:LIN). Ako Capital has a $877.4 million position in the stock, comprising 15.3% of its 13F portfolio. Sitting at the No. 2 spot is Egerton Capital Limited, led by John Armitage, holding a $596.2 million position; 4.4% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism consist of Ian Simm's Impax Asset Management, Bernard Horn's Polaris Capital Management and Ric Dillon's Diamond Hill Capital. In terms of the portfolio weights assigned to each position Ako Capital allocated the biggest weight to Linde plc (NYSE:LIN), around 15.32% of its 13F portfolio. VGI Partners is also relatively very bullish on the stock, setting aside 13.95 percent of its 13F equity portfolio to LIN.

Due to the fact that Linde plc (NYSE:LIN) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few funds that elected to cut their full holdings last quarter. At the top of the heap, Daniel Sundheim's D1 Capital Partners dumped the biggest stake of all the hedgies watched by Insider Monkey, valued at close to $266 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund sold off about $23.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.

Let's go over hedge fund activity in other stocks similar to Linde plc (NYSE:LIN). These stocks are Philip Morris International Inc. (NYSE:PM), International Business Machines Corp. (NYSE:IBM), Citigroup Inc. (NYSE:C), Charter Communications, Inc. (NASDAQ:CHTR), Wells Fargo & Company (NYSE:WFC), BHP Group (NYSE:BBL), and The Boeing Company (NYSE:BA). This group of stocks' market values are closest to LIN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PM,53,2574980,5 IBM,46,918051,5 C,96,6229205,10 CHTR,96,11227561,-8 WFC,86,10344809,10 BBL,22,919411,1 BA,39,1280437,-15 Average,62.6,4784922,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 62.6 hedge funds with bullish positions and the average amount invested in these stocks was $4785 million. That figure was $3643 million in LIN's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 22 bullish hedge fund positions. Linde plc (NYSE:LIN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LIN is 53.7. 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 negative signal and 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 surpassed the market by 21 percentage points. Unfortunately LIN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LIN investors were disappointed as the stock returned 10.9% 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 most of these stocks already outperformed the market in 2020.

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

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