Should You Buy Gildan Activewear Inc (USA) (GIL)?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Gildan Activewear Inc (USA) (NYSE:GIL) a first-rate investment today? Investors who are in the know are getting more optimistic. The number of bullish hedge fund bets moved up by 8 recently. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Comerica Incorporated (NYSE:CMA), Santander Consumer USA Holdings Inc (NYSE:SC), and Varian Medical Systems, Inc. (NYSE:VAR) to gather more data points.

Keeping this in mind, we’re going to take a peek at the recent action regarding Gildan Activewear Inc (USA) (NYSE:GIL).

What have hedge funds been doing with Gildan Activewear Inc (USA) (NYSE:GIL)?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 73% from the second quarter. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Melvin Capital Management, managed by Gabriel Plotkin, holds the largest position in Gildan Activewear Inc (USA) (NYSE:GIL). Melvin Capital Management has a $41.5 million position in the stock, comprising 2.3% of its 13F portfolio. On Melvin Capital Management’s heels is Echo Street Capital Management, led by Greg Poole, holding a $38.6 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain David Keidan’s Buckingham Capital Management, Gregg J. Powers’s Private Capital Management and Eric Sprott’s Sprott Asset Management.

As one would reasonably expect, key hedge funds have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, assembled the largest position in Gildan Activewear Inc (USA) (NYSE:GIL). Melvin Capital Management had $41.5 million invested in the company at the end of the quarter. David Keidan’s Buckingham Capital Management also made a $29.8 million investment in the stock during the quarter. The following funds were also among the new GIL investors: Gabriel Plotkin’s Melvin Capital Management, Steve Cohen’s Point72 Asset Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks similar to Gildan Activewear Inc (USA) (NYSE:GIL) on the next page.

These stocks are Comerica Incorporated (NYSE:CMA), Santander Consumer USA Holdings Inc (NYSE:SC), Varian Medical Systems, Inc. (NYSE:VAR), and Fortinet Inc (NASDAQ:FTNT). This group of stocks’ market valuations resemble GIL’s market valuation.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $658 million. That figure was $203 million in GIL’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand Varian Medical Systems, Inc. (NYSE:VAR) is the least popular one with only 27 bullish hedge fund positions (despite the net increase of 8 funds long the stock). Compared to these stocks Gildan Activewear Inc (USA) (NYSE:GIL) is even less popular than VAR. 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. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.