In this article we will take a look at whether hedge funds think L Brands Inc (NYSE:LB) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
L Brands Inc (NYSE:LB) investors should pay attention to an increase in enthusiasm from smart money recently. L Brands Inc (NYSE:LB) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 46. Our calculations also showed that LB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Gabriel Plotkin of Melvin Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s analyze the latest hedge fund action encompassing L Brands Inc (NYSE:LB).
What have hedge funds been doing with L Brands Inc (NYSE:LB)?
At Q2’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LB over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Melvin Capital Management, managed by Gabriel Plotkin, holds the biggest position in L Brands Inc (NYSE:LB). Melvin Capital Management has a $414.7 million position in the stock, comprising 2.5% of its 13F portfolio. Coming in second is Lone Pine Capital, holding a $393.2 million position; the fund has 2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions contain John Armitage’s Egerton Capital Limited, Jack Woodruff’s Candlestick Capital Management and Robert Pitts’s Steadfast Capital 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 20.72% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, dishing out 8.59 percent of its 13F equity portfolio to LB.
As one would reasonably expect, key money managers were leading the bulls’ herd. Renaissance Technologies, initiated the biggest position in L Brands Inc (NYSE:LB). Renaissance Technologies had $34.6 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $21.3 million position during the quarter. The following funds were also among the new LB investors: Mitch Kuflik and Rob Sobel’s Brahman Capital, Israel Englander’s Millennium Management, and Steven Tananbaum’s GoldenTree Asset Management.
Let’s now review hedge fund activity in other stocks similar to L Brands Inc (NYSE:LB). These stocks are AGCO Corporation (NYSE:AGCO), Penn National Gaming, Inc (NASDAQ:PENN), Emergent Biosolutions Inc (NYSE:EBS), Littelfuse, Inc. (NASDAQ:LFUS), MorphoSys AG (NASDAQ:MOR), LogMeIn Inc (NASDAQ:LOGM), and Redfin Corporation (NASDAQ:RDFN). This group of stocks’ market values match LB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGCO | 21 | 144524 | 2 |
| PENN | 34 | 429102 | 16 |
| EBS | 21 | 119854 | 4 |
| LFUS | 24 | 316882 | 2 |
| MOR | 6 | 12533 | 1 |
| LOGM | 31 | 785090 | 3 |
| RDFN | 26 | 203341 | 6 |
| Average | 23.3 | 287332 | 4.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $1473 million in LB’s case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks L Brands Inc (NYSE:LB) is more popular among hedge funds. Our overall hedge fund sentiment score for LB is 85.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on LB as the stock returned 132.2% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Follow Bath & Body Works Inc. (NYSE:BBWI)
Follow Bath & Body Works Inc. (NYSE:BBWI)
Disclosure: None. This article was originally published at Insider Monkey.
