Were Hedge Funds Right About Buying The Hain Celestial Group, Inc. (HAIN)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The Hain Celestial Group, Inc. (NASDAQ:HAIN) at the end of the first quarter and determine whether the smart money was really smart about this stock.

The Hain Celestial Group, Inc. (NASDAQ:HAIN) shareholders have witnessed an increase in hedge fund interest of late. Our calculations also showed that HAIN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to check out the recent hedge fund action regarding The Hain Celestial Group, Inc. (NASDAQ:HAIN).

What does smart money think about The Hain Celestial Group, Inc. (NASDAQ:HAIN)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HAIN over the last 18 quarters. So, let’s review 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, Engaged Capital, managed by Glenn W. Welling, holds the biggest position in The Hain Celestial Group, Inc. (NASDAQ:HAIN). Engaged Capital has a $547.2 million position in the stock, comprising 71.7% of its 13F portfolio. The second largest stake is held by David Paradice of Paradice Investment Management, with a $61.4 million position; 6.8% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions encompass Mario Gabelli’s GAMCO Investors, Joe Milano’s Greenhouse Funds and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Engaged Capital allocated the biggest weight to The Hain Celestial Group, Inc. (NASDAQ:HAIN), around 71.73% of its 13F portfolio. Paradice Investment Management is also relatively very bullish on the stock, designating 6.81 percent of its 13F equity portfolio to HAIN.

As aggregate interest increased, some big names were breaking ground themselves. Greenhouse Funds, managed by Joe Milano, initiated the biggest position in The Hain Celestial Group, Inc. (NASDAQ:HAIN). Greenhouse Funds had $16.7 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also made a $5.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Noam Gottesman’s GLG Partners, and David Harding’s Winton Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Hain Celestial Group, Inc. (NASDAQ:HAIN) but similarly valued. We will take a look at Appian Corporation (NASDAQ:APPN), Farfetch Limited (NYSE:FTCH), Spirit Realty Capital Inc (NYSE:SRC), and Medallia, Inc. (NYSE:MDLA). This group of stocks’ market values match HAIN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $705 million in HAIN’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Appian Corporation (NASDAQ:APPN) is the least popular one with only 17 bullish hedge fund positions. The Hain Celestial Group, Inc. (NASDAQ:HAIN) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on HAIN, though not to the same extent, as the stock returned 30.4% since the end of March and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.