Were Hedge Funds Right About The Estee Lauder Companies Inc (EL)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about The Estee Lauder Companies Inc (NYSE:EL) in this article.

The Estee Lauder Companies Inc (NYSE:EL) investors should pay attention to a decrease in enthusiasm from smart money recently. The Estee Lauder Companies Inc (NYSE:EL) was in 50 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 59. Our calculations also showed that EL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Dan Loeb of Third Point

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. 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. 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 homepage. With all of this in mind we’re going to take a look at the recent hedge fund action regarding The Estee Lauder Companies Inc (NYSE:EL).

Do Hedge Funds Think EL Is A Good Stock To Buy Now?

At second quarter’s end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the first quarter of 2020. On the other hand, there were a total of 46 hedge funds with a bullish position in EL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fundsmith LLP was the largest shareholder of The Estee Lauder Companies Inc (NYSE:EL), with a stake worth $2172.6 million reported as of the end of June. Trailing Fundsmith LLP was Ako Capital, which amassed a stake valued at $442.6 million. Third Point, AQR Capital Management, and Bridgewater Associates 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 Keywise Capital Management allocated the biggest weight to The Estee Lauder Companies Inc (NYSE:EL), around 8.75% of its 13F portfolio. Fundsmith LLP is also relatively very bullish on the stock, designating 6.02 percent of its 13F equity portfolio to EL.

Due to the fact that The Estee Lauder Companies Inc (NYSE:EL) has witnessed bearish sentiment from the smart money, we can see that there exists a select few funds that slashed their full holdings in the second quarter. Interestingly, Steve Cohen’s Point72 Asset Management cut the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $73.2 million in stock. Larry Chen and Terry Zhang’s fund, Tairen Capital, also dropped its stock, about $46.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 9 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Estee Lauder Companies Inc (NYSE:EL) but similarly valued. These stocks are 3M Company (NYSE:MMM), Advanced Micro Devices, Inc. (NASDAQ:AMD), Zoom Video Communications, Inc. (NASDAQ:ZM), Diageo plc (NYSE:DEO), Square, Inc. (NYSE:SQ), Deere & Company (NYSE:DE), and CVS Health Corporation (NYSE:CVS). This group of stocks’ market caps are similar to EL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.7 hedge funds with bullish positions and the average amount invested in these stocks was $4203 million. That figure was $4130 million in EL’s case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 20 bullish hedge fund positions. The Estee Lauder Companies Inc (NYSE:EL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EL is 41.7. 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 gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on EL as the stock returned 10% since the end of the second quarter (through 11/5) and outperformed the market by an even larger margin.

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