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 Coty Inc (NYSE:COTY).
Coty Inc (NYSE:COTY) has experienced an increase in activity from the world’s largest hedge funds in recent months. Coty Inc (NYSE:COTY) was in 25 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 46. There were 22 hedge funds in our database with COTY holdings at the end of December. Our calculations also showed that COTY isn’t among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Gabriel Plotkin of Melvin Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s review the key hedge fund action surrounding Coty Inc (NYSE:COTY).
Do Hedge Funds Think COTY Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the fourth quarter of 2020. On the other hand, there were a total of 33 hedge funds with a bullish position in COTY a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Contrarius Investment Management held the most valuable stake in Coty Inc (NYSE:COTY), which was worth $64.4 million at the end of the fourth quarter. On the second spot was Prentice Capital Management which amassed $47.3 million worth of shares. Citadel Investment Group, Melvin Capital Management, and Kettle Hill Capital 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 Prentice Capital Management allocated the biggest weight to Coty Inc (NYSE:COTY), around 14.7% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, earmarking 4.43 percent of its 13F equity portfolio to COTY.
Consequently, key hedge funds have jumped into Coty Inc (NYSE:COTY) headfirst. MIK Capital, managed by Kamyar Khajavi, initiated the biggest position in Coty Inc (NYSE:COTY). MIK Capital had $7.1 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $5.9 million investment in the stock during the quarter. The other funds with brand new COTY positions are Anthony Joseph Vaccarino’s North Fourth Asset Management, Israel Englander’s Millennium Management, and Donald Sussman’s Paloma Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Coty Inc (NYSE:COTY) but similarly valued. We will take a look at Denali Therapeutics Inc. (NASDAQ:DNLI), TFI International Inc. (NYSE:TFII), Cullen/Frost Bankers, Inc. (NYSE:CFR), ADT Inc. (NYSE:ADT), Axalta Coating Systems Ltd (NYSE:AXTA), Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), and Redfin Corporation (NASDAQ:RDFN). This group of stocks’ market valuations resemble COTY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DNLI | 26 | 250609 | 6 |
| TFII | 19 | 164356 | 9 |
| CFR | 11 | 18887 | -6 |
| ADT | 16 | 283810 | -8 |
| AXTA | 43 | 1563342 | -3 |
| ARWR | 20 | 151598 | -4 |
| RDFN | 18 | 434551 | -3 |
| Average | 21.9 | 409593 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $410 million. That figure was $263 million in COTY’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Cullen/Frost Bankers, Inc. (NYSE:CFR) is the least popular one with only 11 bullish hedge fund positions. Coty Inc (NYSE:COTY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for COTY is 46.2. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately COTY wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on COTY were disappointed as the stock returned -1.2% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Coty Inc. (NYSE:COTY)
Follow Coty Inc. (NYSE:COTY)
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Disclosure: None. This article was originally published at Insider Monkey.
