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 (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 analyze whether L Brands Inc (NYSE:LB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is L Brands Inc (NYSE:LB) a buy right now? Prominent investors are buying. The number of bullish hedge fund positions moved up by 7 lately. Our calculations also showed that LB 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).
At the moment there are numerous metrics stock traders use to value their holdings. Some of the less known metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best money managers can trounce the broader indices by a superb amount (see the details here).
Ricky Sandler of Eminence Capital
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. With all of this in mind let’s take a gander at the key hedge fund action surrounding L Brands Inc (NYSE:LB).
How have hedgies been trading L Brands Inc (NYSE:LB)?
At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LB over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in L Brands Inc (NYSE:LB) was held by Eminence Capital, which reported holding $105.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $88.1 million position. Other investors bullish on the company included Contrarius Investment Management, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Barington Capital Group allocated the biggest weight to L Brands Inc (NYSE:LB), around 12.23% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, setting aside 8.04 percent of its 13F equity portfolio to LB.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Eminence Capital, managed by Ricky Sandler, created the biggest position in L Brands Inc (NYSE:LB). Eminence Capital had $105.6 million invested in the company at the end of the quarter. Andrew Kurita’s Kettle Hill Capital Management also initiated a $31.9 million position during the quarter. The other funds with brand new LB positions are Amir Mokari’s Emerson Point Capital, James Parsons’s Junto Capital Management, and Gregg Moskowitz’s Interval Partners.
Let’s now take a look at hedge fund activity in other stocks similar to L Brands Inc (NYSE:LB). We will take a look at Integra Lifesciences Holdings Corp (NASDAQ:IART), Blackstone Mortgage Trust Inc (NYSE:BXMT), Axis Capital Holdings Limited (NYSE:AXS), and Portland General Electric Company (NYSE:POR). This group of stocks’ market valuations are similar to LB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IART | 17 | 115558 | -6 |
| BXMT | 15 | 64533 | -2 |
| AXS | 34 | 942398 | 2 |
| POR | 27 | 408157 | 0 |
| Average | 23.25 | 382662 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $681 million in LB’s case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand Blackstone Mortgage Trust Inc (NYSE:BXMT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks L Brands Inc (NYSE:LB) 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. These stocks lost 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on LB, though not to the same extent, as the stock returned -22.2% during the first quarter (through March 25th) and outperformed the market as well.
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.
