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Is American Eagle Outfitters Inc. (AEO) Going to Burn These Hedge Funds?

Reymerlyn Martin

At Insider Monkey, we pore over the filings of nearly 750 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 September 30. 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) the right pick for your portfolio? Hedge funds are getting more optimistic. The number of bullish hedge fund bets went up by 7 lately. Our calculations also showed that AEO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AEO was in 28 hedge funds' portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with AEO positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_339612" align="aligncenter" width="600"] Kerr Neilson of Platinum Asset Management[/caption]

Kerr Neilson of Platinum Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the recent hedge fund action regarding American Eagle Outfitters Inc. (NYSE:AEO).

What does smart money think about American Eagle Outfitters Inc. (NYSE:AEO)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in AEO a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AEO_dec2019

According to Insider Monkey's hedge fund database, Renaissance Technologies has the most valuable position in American Eagle Outfitters Inc. (NYSE:AEO), worth close to $88.5 million, comprising 0.1% of its total 13F portfolio. On Renaissance Technologies's heels is Cliff Asness of AQR Capital Management, with a $51.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other peers that are bullish comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Kerr Neilson's Platinum Asset Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position DC Capital Partners allocated the biggest weight to American Eagle Outfitters Inc. (NYSE:AEO), around 14.23% of its portfolio. Buckingham Capital Management is also relatively very bullish on the stock, designating 1.14 percent of its 13F equity portfolio to AEO.

Now, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in American Eagle Outfitters Inc. (NYSE:AEO). Balyasny Asset Management had $12.2 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also initiated a $3.6 million position during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, Minhua Zhang's Weld Capital Management, and Alec Litowitz and Ross Laser's Magnetar Capital.

Let's now review hedge fund activity in other stocks similar to American Eagle Outfitters Inc. (NYSE:AEO). These stocks are Vonage Holdings Corp. (NYSE:VG), Main Street Capital Corporation (NYSE:MAIN), SITE Centers Corp. (NYSE:SITC), and Delek US Holdings, Inc. (NYSE:DK). All of these stocks' market caps match AEO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VG,30,369454,-9 MAIN,4,13169,0 SITC,11,54558,-4 DK,21,87212,3 Average,16.5,131098,-2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $359 million in AEO's case. Vonage Holdings Corp. (NYSE:VG) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 4 bullish hedge fund positions. American Eagle Outfitters Inc. (NYSE:AEO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AEO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AEO were disappointed as the stock returned -6.8% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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