We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Capri Holdings Limited (NYSE:CPRI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Capri Holdings Limited (NYSE:CPRI) investors should pay attention to a decrease in support from the world’s most elite money managers recently. Our calculations also showed that CPRI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Alexander Roepers of Atlantic Investment Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the latest hedge fund action encompassing Capri Holdings Limited (NYSE:CPRI).
How have hedgies been trading Capri Holdings Limited (NYSE:CPRI)?
At Q4’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CPRI over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Eminence Capital held the most valuable stake in Capri Holdings Limited (NYSE:CPRI), which was worth $481.7 million at the end of the third quarter. On the second spot was Rima Senvest Management which amassed $111.4 million worth of shares. D E Shaw, Arrowstreet Capital, and Atlantic Investment Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Atlantic Investment Management allocated the biggest weight to Capri Holdings Limited (NYSE:CPRI), around 15.13% of its 13F portfolio. Courage Capital is also relatively very bullish on the stock, designating 9.51 percent of its 13F equity portfolio to CPRI.
Due to the fact that Capri Holdings Limited (NYSE:CPRI) has faced falling interest from the smart money, it’s easy to see that there exists a select few hedge funds that slashed their full holdings last quarter. Intriguingly, Mike Masters’s Masters Capital Management cut the largest stake of all the hedgies tracked by Insider Monkey, valued at close to $33.2 million in stock, and Mark Coe’s Intrinsic Edge Capital was right behind this move, as the fund said goodbye to about $13.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Capri Holdings Limited (NYSE:CPRI) but similarly valued. We will take a look at SolarWinds Corporation (NYSE:SWI), Choice Hotels International, Inc. (NYSE:CHH), Allison Transmission Holdings Inc (NYSE:ALSN), and PG&E Corporation (NYSE:PCG). All of these stocks’ market caps resemble CPRI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SWI | 15 | 2527306 | 2 |
| CHH | 16 | 124873 | -6 |
| ALSN | 33 | 769433 | 2 |
| PCG | 50 | 2755115 | -16 |
| Average | 28.5 | 1544182 | -4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1544 million. That figure was $1034 million in CPRI’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand SolarWinds Corporation (NYSE:SWI) is the least popular one with only 15 bullish hedge fund positions. Capri Holdings Limited (NYSE:CPRI) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CPRI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CPRI were disappointed as the stock returned -66.2% 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
