Did Hedge Funds Drop The Ball On XPO Logistics Inc (XPO) ?

Nina Todic

Mon, Oct 14, 2019, 6:43 PM

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is XPO Logistics Inc (NYSE:XPO) the right pick for your portfolio? Hedge funds are taking a pessimistic view. The number of long hedge fund positions shrunk by 2 lately. Our calculations also showed that XPO isn't among the 30 most popular stocks among hedge funds.

To the average investor there are several indicators stock market investors use to grade publicly traded companies. A pair of the most innovative indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite investment managers can trounce their index-focused peers by a solid margin (see the details here).

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's review the fresh hedge fund action surrounding XPO Logistics Inc (NYSE:XPO).

Hedge fund activity in XPO Logistics Inc (NYSE:XPO)

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards XPO over the last 16 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Orbis Investment Management held the most valuable stake in XPO Logistics Inc (NYSE:XPO), which was worth $1238.5 million at the end of the second quarter. On the second spot was Spruce House Investment Management which amassed $737.1 million worth of shares. Moreover, Baupost Group, ValueAct Capital, and MFN Partners were also bullish on XPO Logistics Inc (NYSE:XPO), allocating a large percentage of their portfolios to this stock.

Seeing as XPO Logistics Inc (NYSE:XPO) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there were a few money managers who were dropping their positions entirely in the second quarter. It's worth mentioning that David Keidan's Buckingham Capital Management sold off the largest position of the 750 funds tracked by Insider Monkey, valued at about $6.1 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also cut its stock, about $4.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the second quarter.

Let's check out hedge fund activity in other stocks similar to XPO Logistics Inc (NYSE:XPO). These stocks are IDACORP Inc (NYSE:IDA), Compania Cervecerias Unidas S.A. (NYSE:CCU), Primerica, Inc. (NYSE:PRI), and Lincoln Electric Holdings, Inc. (NASDAQ:LECO). This group of stocks' market values match XPO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IDA,22,332483,4 CCU,10,69208,-1 PRI,26,334200,14 LECO,22,279642,-4 Average,20,253883,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $254 million. That figure was $2276 million in XPO's case. Primerica, Inc. (NYSE:PRI) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 10 bullish hedge fund positions. XPO Logistics Inc (NYSE:XPO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks (view the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on XPO as the stock returned 23.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.