We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Coty Inc (NYSE:COTY) and determine whether hedge funds skillfully traded this stock.
Coty Inc (NYSE:COTY) was in 40 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 46. COTY has seen an increase in activity from the world’s largest hedge funds of late. There were 30 hedge funds in our database with COTY holdings at the end of June. Our calculations also showed that COTY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to review the recent hedge fund action regarding Coty Inc (NYSE:COTY).
Do Hedge Funds Think COTY Is A Good Stock To Buy Now?
At third quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in COTY a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Melvin Capital Management held the most valuable stake in Coty Inc (NYSE:COTY), which was worth $117.9 million at the end of the third quarter. On the second spot was Melvin Capital Management which amassed $94.3 million worth of shares. Point72 Asset Management, Prentice Capital Management, and Candlestick Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to Coty Inc (NYSE:COTY), around 15.21% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, setting aside 3.26 percent of its 13F equity portfolio to COTY.
Now, specific money managers were leading the bulls’ herd. Melvin Capital Management, managed by Gabriel Plotkin, created the largest call position in Coty Inc (NYSE:COTY). Melvin Capital Management had $94.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $15.3 million investment in the stock during the quarter. The following funds were also among the new COTY investors: Paul Tudor Jones’s Tudor Investment Corp, Mike Masters’s Masters Capital Management, and Matthew L Pinz’s Pinz Capital.
Let’s also examine hedge fund activity in other stocks similar to Coty Inc (NYSE:COTY). We will take a look at MasTec, Inc. (NYSE:MTZ), Elbit Systems Ltd. (NASDAQ:ESLT), KT Corporation (NYSE:KT), Nexstar Media Group, Inc. (NASDAQ:NXST), Texas Roadhouse Inc (NASDAQ:TXRH), VCA Antech Inc (NASDAQ:WOOF), and Stag Industrial Inc (NYSE:STAG). All of these stocks’ market caps resemble COTY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTZ | 24 | 439777 | -15 |
| ESLT | 4 | 56484 | 0 |
| KT | 12 | 166766 | -2 |
| NXST | 38 | 874017 | 4 |
| TXRH | 36 | 993486 | -1 |
| WOOF | 26 | 319858 | -1 |
| STAG | 17 | 219383 | 2 |
| Average | 22.4 | 438539 | -1.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $519 million in COTY’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Coty Inc (NYSE:COTY) is more popular among hedge funds. Our overall hedge fund sentiment score for COTY is 86.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on COTY as the stock returned 7.9% since the end of September (through 1/31) 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 Coty Inc. (NYSE:COTY)
Follow Coty Inc. (NYSE:COTY)
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Disclosure: None. This article was originally published at Insider Monkey.
