Should You Avoid Estee Lauder Companies Inc (EL)?

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: Estee Lauder Companies Inc (NYSE:EL).

Estee Lauder Companies Inc (NYSE:EL) has seen a decrease in hedge fund sentiment recently. EL was in 27 hedge funds’ portfolios at the end of September. There were 31 hedge funds in our database with EL holdings at the end of the previous quarter. At the end of this article we will also compare EL to other stocks including Manulife Financial Corporation (USA) (NYSE:MFC), Wipro Limited (ADR) (NYSE:WIT), and Las Vegas Sands Corp. (NYSE:LVS) to get a better sense of its popularity.

Now, we’re going to view the latest action regarding Estee Lauder Companies Inc (NYSE:EL).

What have hedge funds been doing with Estee Lauder Companies Inc (NYSE:EL)?

Heading into Q4, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Columbus Circle Investors has the largest position in Estee Lauder Companies Inc (NYSE:EL), worth close to $120.9 million, accounting for 1% of its total 13F portfolio. Coming in second is Renaissance Technologies, led by Jim Simons, holding a $56.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions comprise Cliff Asness’ AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Gabriel Plotkin’s Melvin Capital Management.

Because Estee Lauder Companies Inc (NYSE:EL) has faced a declination in interest from the smart money, logic holds that there exists a select few fund managers that slashed their entire stakes in the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group cut the largest stake of the “upper crust” of funds watched by Insider Monkey, worth close to $48 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $42.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Estee Lauder Companies Inc (NYSE:EL) but similarly valued. We will take a look at Manulife Financial Corporation (USA) (NYSE:MFC), Wipro Limited (ADR) (NYSE:WIT), Las Vegas Sands Corp. (NYSE:LVS), and Halliburton Company (NYSE:HAL). This group of stocks’ market valuations resemble EL’s market valuation.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1092 million. That figure was $466 million in EL’s case. Halliburton Company (NYSE:HAL) is the most popular stock in this table. On the other hand Wipro Limited (ADR) (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Estee Lauder Companies Inc (NYSE:EL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HAL might be a better candidate to consider a long position.