Is Landstar System, Inc. (LSTR) A Good Stock To Buy?

Nina Todic

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31. In this article, we will use that wealth of knowledge to determine whether or not Landstar System, Inc. (NASDAQ:LSTR) makes for a good investment right now.

Hedge fund interest in Landstar System, Inc. (NASDAQ:LSTR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LSTR to other stocks including Brunswick Corporation (NYSE:BC), Southwest Gas Holdings, Inc. (NYSE:SWX), and The Scotts Miracle-Gro Company (NYSE:SMG) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? 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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce
Chuck Royce

We're going to review the new hedge fund action surrounding Landstar System, Inc. (NASDAQ:LSTR).

How are hedge funds trading Landstar System, Inc. (NASDAQ:LSTR)?

At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in LSTR 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.

No of Hedge Funds with LSTR Positions
No of Hedge Funds with LSTR Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the number one position in Landstar System, Inc. (NASDAQ:LSTR). Royce & Associates has a $90.3 million position in the stock, comprising 0.8% of its 13F portfolio. The second largest stake is held by Impala Asset Management, led by Robert Bishop, holding a $25 million position; 1.3% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions consist of Cliff Asness's AQR Capital Management, Noam Gottesman's GLG Partners and Alexander Mitchell's Scopus Asset Management.

Because Landstar System, Inc. (NASDAQ:LSTR) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedgies who were dropping their entire stakes in the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the biggest investment of all the hedgies followed by Insider Monkey, comprising about $2.3 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also cut its stock, about $0.6 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Landstar System, Inc. (NASDAQ:LSTR) but similarly valued. These stocks are Brunswick Corporation (NYSE:BC), Southwest Gas Holdings, Inc. (NYSE:SWX), The Scotts Miracle-Gro Company (NYSE:SMG), and SLM Corp (NASDAQ:SLM). This group of stocks' market valuations are closest to LSTR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BC,27,564907,1 SWX,20,207977,3 SMG,16,167599,-4 SLM,29,576434,5 Average,23,379229,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $209 million in LSTR's case. SLM Corp (NASDAQ:SLM) is the most popular stock in this table. On the other hand The Scotts Miracle-Gro Company (NYSE:SMG) is the least popular one with only 16 bullish hedge fund positions. Landstar System, Inc. (NASDAQ:LSTR) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LSTR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LSTR investors were disappointed as the stock returned -11.2% 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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