Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Levi Strauss & Co. (NYSE:LEVI) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Levi Strauss & Co. (NYSE:LEVI) a buy right now? The smart money is in an optimistic mood. The number of long hedge fund positions went up by 1 lately. Our calculations also showed that LEVI 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). LEVI was in 11 hedge funds’ portfolios at the end of December. There were 10 hedge funds in our database with LEVI holdings at the end of the previous quarter.
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.
Steven Cohen of Point72 Asset 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 let’s review the fresh hedge fund action encompassing Levi Strauss & Co. (NYSE:LEVI).
Hedge fund activity in Levi Strauss & Co. (NYSE:LEVI)
Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the third quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in LEVI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Levi Strauss & Co. (NYSE:LEVI), with a stake worth $6.9 million reported as of the end of September. Trailing Citadel Investment Group was Point72 Asset Management, which amassed a stake valued at $6.3 million. SRS Investment Management, Balyasny Asset Management, and Marshall Wace LLP 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 Islet Management allocated the biggest weight to Levi Strauss & Co. (NYSE:LEVI), around 0.31% of its 13F portfolio. North Fourth Asset Management is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to LEVI.
Now, some big names were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in Levi Strauss & Co. (NYSE:LEVI). Point72 Asset Management had $6.3 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also initiated a $3.4 million position during the quarter. The following funds were also among the new LEVI investors: Anthony Joseph Vaccarino’s North Fourth Asset Management, D. E. Shaw’s D E Shaw, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Levi Strauss & Co. (NYSE:LEVI) but similarly valued. These stocks are Spirit AeroSystems Holdings, Inc. (NYSE:SPR), The Stars Group Inc. (NASDAQ:TSG), Gardner Denver Holdings, Inc. (NYSE:GDI), and GCI Liberty, Inc. (NASDAQ:GLIBA). This group of stocks’ market values are closest to LEVI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPR | 48 | 1874707 | 9 |
| TSG | 45 | 1366436 | 11 |
| GDI | 22 | 232648 | 3 |
| GLIBA | 47 | 2304829 | 10 |
| Average | 40.5 | 1444655 | 8.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $1445 million. That figure was $34 million in LEVI’s case. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the most popular stock in this table. On the other hand Gardner Denver Holdings, Inc. (NYSE:GDI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Levi Strauss & Co. (NYSE:LEVI) is even less popular than GDI. Hedge funds dodged a bullet by taking a bearish stance towards LEVI. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately LEVI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LEVI investors were disappointed as the stock returned -26.4% 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 most of these stocks already outperformed the market so far in Q1.
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.
