Is Revlon Inc (REV) A Good Stock to Buy?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Revlon Inc (NYSE:REV).

Revlon Inc (NYSE:REV) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of the third quarter of 2016, same as at the end of the second quarter. At the end of this article we will also compare REV to other stocks including Bloomin’ Brands Inc (NASDAQ:BLMN), Boston Beer Co Inc (NYSE:SAM), and The New York Times Company (NYSE:NYT) to get a better sense of its popularity.

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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How have hedgies been trading Revlon Inc (NYSE:REV)?

Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in REV heading into this year, so ownership is up by 1 in 2016. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the biggest hedge funds in the world, has the number one position in Revlon Inc (NYSE:REV), worth close to $7.7 million. Coming in second is Harvey Partners, led by Jeffrey Moskowitz, holding a $1.9 million position; 2.2% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Roger Ibbotson’s Zebra Capital Management, and Ken Griffin’s Citadel Investment Group. We should note that Harvey Partners is among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

Judging by the fact that Revlon Inc (NYSE:REV) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Israel Englander’s Millennium Management said goodbye to the biggest position of the 700 funds followed by Insider Monkey, worth about $2.2 million in stock. Citadel Investment Group also dumped its call options, about $0.2 million worth, while retaining its long position.

Let’s check out hedge fund activity in other stocks similar to Revlon Inc (NYSE:REV). These stocks are Bloomin’ Brands Inc (NASDAQ:BLMN), Boston Beer Co Inc (NYSE:SAM), The New York Times Company (NYSE:NYT), and Carpenter Technology Corporation (NYSE:CRS). This group of stocks’ market caps resemble REV’s market cap.

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 $186 million. That figure was $16 million in REV’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Carpenter Technology Corporation (NYSE:CRS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Revlon Inc (NYSE:REV) is only as popular as CRS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None