Is Lululemon Athletica Inc. (LULU) A Good Stock To Buy Right Now?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Lululemon Athletica inc. (NASDAQ:LULU).

Is Lululemon Athletica inc. (NASDAQ:LULU) a healthy stock for your portfolio? Investors who are in the know are actually turning less bullish. The number of long hedge fund bets shrunk by 2 lately. The level and the change in hedge fund popularity aren’t the only variables we to analyze to decipher hedge funds’ perspectives. A stock may witness a decline in popularity but it may still be more popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Verisign, Inc. (NASDAQ:VRSN), Tripadvisor Inc (NASDAQ:TRIP), and Ingredion Inc (NYSE:INGR) to gather more data points.

So why do we care about hedge fund sentiment so much? At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, we’re going to take a gander at the recent action regarding Lululemon Athletica inc. (NASDAQ:LULU).

Hedge fund activity in Lululemon Athletica inc. (NASDAQ:LULU)

At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. This number was notably higher during the third quarter of 2015 as you can see in the graph below. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Lone Pine Capital, managed by billionaire Stephen Mandel, holds the largest position in Lululemon Athletica inc. (NASDAQ:LULU). Lone Pine Capital has a $340.6 million position in the stock, comprising 1.5% of its 13F portfolio. The second largest stake is held by Jim Simons of Renaissance Technologies, with a $58 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions comprise Robert Joseph Caruso’s Select Equity Group, John Overdeck and David Siegel’s Two Sigma Advisors and Dmitry Balyasny’s Balyasny Asset Management.

Judging by the fact that Lululemon Athletica inc. (NASDAQ:LULU) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that slashed their positions entirely in the third quarter. Interestingly, Principal Global Investors’s Columbus Circle Investors said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, worth about $30.6 million in call options.. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its call options., about $28 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Lululemon Athletica inc. (NASDAQ:LULU). We will take a look at Verisign, Inc. (NASDAQ:VRSN), Tripadvisor Inc (NASDAQ:TRIP), Ingredion Inc (NYSE:INGR), and KeyCorp (NYSE:KEY). This group of stocks’ market valuations are closest to LULU’s market valuation.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.04 billion. That figure was $679 million in LULU’s case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand Ingredion Inc (NYSE:INGR) is the least popular one with only 23 bullish hedge fund positions. Lululemon Athletica inc. (NASDAQ:LULU) is not the least popular stock in this group but hedge fund interest is still relatively small. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KEY might be a better candidate to consider a long position.