Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish 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.
Is The Estee Lauder Companies Inc (NYSE:EL) the right investment to pursue these days? Hedge funds are taking an optimistic view. The number of long hedge fund positions increased by 2 lately. Our calculations also showed that EL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). EL was in 50 hedge funds’ portfolios at the end of December. There were 48 hedge funds in our database with EL holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Gabriel Plotkin of Melvin Capital Management
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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a look at the latest hedge fund action surrounding The Estee Lauder Companies Inc (NYSE:EL).
How are hedge funds trading The Estee Lauder Companies Inc (NYSE:EL)?
At the end of the fourth quarter, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in EL 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.
Among these funds, AQR Capital Management held the most valuable stake in The Estee Lauder Companies Inc (NYSE:EL), which was worth $388.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $313.5 million worth of shares. Ako Capital, Melvin Capital Management, and Point72 Asset 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 Bristol Gate Capital Partners allocated the biggest weight to The Estee Lauder Companies Inc (NYSE:EL), around 4.64% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, earmarking 4.17 percent of its 13F equity portfolio to EL.
As aggregate interest increased, some big names were leading the bulls’ herd. Ako Capital, managed by Nicolai Tangen, assembled the largest position in The Estee Lauder Companies Inc (NYSE:EL). Ako Capital had $194 million invested in the company at the end of the quarter. Rajiv Jain’s GQG Partners also initiated a $101.5 million position during the quarter. The following funds were also among the new EL investors: Richard Driehaus’s Driehaus Capital, Alexander Mitchell’s Scopus Asset Management, and Steven Boyd’s Armistice Capital.
Let’s now review hedge fund activity in other stocks similar to The Estee Lauder Companies Inc (NYSE:EL). We will take a look at Automatic Data Processing, Inc. (NASDAQ:ADP), Becton, Dickinson and Company (NYSE:BDX), The TJX Companies, Inc. (NYSE:TJX), and Ambev SA (NYSE:ABEV). This group of stocks’ market values are similar to EL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADP | 51 | 2821795 | -5 |
| BDX | 50 | 1447307 | -1 |
| TJX | 57 | 2182820 | 4 |
| ABEV | 14 | 548416 | -5 |
| Average | 43 | 1750085 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1750 million. That figure was $1697 million in EL’s case. The TJX Companies, Inc. (NYSE:TJX) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 14 bullish hedge fund positions. The Estee Lauder Companies Inc (NYSE:EL) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on EL, though not to the same extent, as the stock returned -13.6% during the first two months of 2020 (through March 9th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
