Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Newell Brands Inc. (NASDAQ:NWL).
Hedge fund interest in Newell Brands Inc. (NASDAQ:NWL) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as China Eastern Airlines Corporation Limited (NYSE:CEA), The Mosaic Company (NYSE:MOS), and Universal Display Corporation (NASDAQ:OLED) to gather more data points. Our calculations also showed that NWL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Carl Icahn of Icahn Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to take a peek at the latest hedge fund action encompassing Newell Brands Inc. (NASDAQ:NWL).
How have hedgies been trading Newell Brands Inc. (NASDAQ:NWL)?
At Q3’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in NWL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Newell Brands Inc. (NASDAQ:NWL) was held by Icahn Capital, which reported holding $769.8 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $471.2 million position. Other investors bullish on the company included Glenview Capital, Maverick Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Proxima Capital Management allocated the biggest weight to Newell Brands Inc. (NASDAQ:NWL), around 7.92% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, earmarking 4.12 percent of its 13F equity portfolio to NWL.
Because Newell Brands Inc. (NASDAQ:NWL) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Cliff Asness’s AQR Capital Management cut the largest stake of the 750 funds followed by Insider Monkey, worth close to $3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $1.5 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Newell Brands Inc. (NASDAQ:NWL) but similarly valued. We will take a look at China Eastern Airlines Corporation Limited (NYSE:CEA), The Mosaic Company (NYSE:MOS), Universal Display Corporation (NASDAQ:OLED), and Kohl’s Corporation (NYSE:KSS). This group of stocks’ market valuations match NWL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CEA | 1 | 657 | 0 |
| MOS | 17 | 682952 | -11 |
| OLED | 23 | 231521 | 6 |
| KSS | 27 | 495049 | -2 |
| Average | 17 | 352545 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $353 million. That figure was $1435 million in NWL’s case. Kohl’s Corporation (NYSE:KSS) is the most popular stock in this table. On the other hand China Eastern Airlines Corporation Limited (NYSE:CEA) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Newell Brands Inc. (NASDAQ:NWL) is more popular among hedge funds. 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. Unfortunately NWL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NWL were disappointed as the stock returned 9.4% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019.
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.
