Where Do Hedge Funds Stand On American Eagle Outfitters Inc. (AEO)?

At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not American Eagle Outfitters Inc. (NYSE:AEO) makes for a good investment right now.

Is American Eagle Outfitters Inc. (NYSE:AEO) a buy right now? Hedge funds were in a bearish mood. The number of bullish hedge fund positions dropped by 2 in recent months. American Eagle Outfitters Inc. (NYSE:AEO) was in 41 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 43. Our calculations also showed that AEO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 43 hedge funds in our database with AEO holdings at the end of March.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was 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). So you can still find a lot of gems by following hedge funds’ moves today.

Rajiv Jain of GQG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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 fresh hedge fund action regarding American Eagle Outfitters Inc. (NYSE:AEO).

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

Heading into the third quarter of 2021, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AEO over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Select Equity Group held the most valuable stake in American Eagle Outfitters Inc. (NYSE:AEO), which was worth $666.5 million at the end of the second quarter. On the second spot was Atreides Management which amassed $314.6 million worth of shares. Millennium Management, Arrowstreet Capital, and Platinum Asset 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 Atreides Management allocated the biggest weight to American Eagle Outfitters Inc. (NYSE:AEO), around 5.62% of its 13F portfolio. Verdad Advisers is also relatively very bullish on the stock, dishing out 3.68 percent of its 13F equity portfolio to AEO.

Due to the fact that American Eagle Outfitters Inc. (NYSE:AEO) has experienced falling interest from the smart money, it’s safe to say that there exists a select few fund managers that elected to cut their positions entirely last quarter. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management sold off the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling about $61.4 million in stock. David Thomas’s fund, Atalan Capital, also cut its stock, about $40.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as American Eagle Outfitters Inc. (NYSE:AEO) but similarly valued. These stocks are MP Materials Corp. (NYSE:MP), Littelfuse, Inc. (NASDAQ:LFUS), Thor Industries, Inc. (NYSE:THO), Endava plc (NYSE:DAVA), TD SYNNEX (NYSE:SNX), Callaway Golf Company (NYSE:ELY), and Lumentum Holdings Inc (NASDAQ:LITE). This group of stocks’ market valuations are closest to AEO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $707 million. That figure was $1875 million in AEO’s case. Callaway Golf Company (NYSE:ELY) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks American Eagle Outfitters Inc. (NYSE:AEO) is more popular among hedge funds. Our overall hedge fund sentiment score for AEO is 81.6. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Unfortunately AEO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AEO were disappointed as the stock returned -35.3% since the end of the second quarter (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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