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Should I Avoid Lululemon Athletica inc. (LULU)?

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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the first quarter, which unveil their equity positions as of March 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Lululemon Athletica inc. (NASDAQ:LULU).

Lululemon Athletica inc. (NASDAQ:LULU) was in 41 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 52. LULU has seen a decrease in enthusiasm from smart money recently. There were 50 hedge funds in our database with LULU positions at the end of the fourth quarter. Our calculations also showed that LULU isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

At the moment there are dozens of gauges investors employ to value stocks. A couple of the most innovative gauges are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the best investment managers can outperform the broader indices by a healthy amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Andrew Sandler of Sandler Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. Keeping this in mind we're going to take a peek at the new hedge fund action encompassing Lululemon Athletica inc. (NASDAQ:LULU).

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

At Q1's end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards LULU over the last 23 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Lululemon Athletica inc. (NASDAQ:LULU), with a stake worth $211.6 million reported as of the end of March. Trailing Citadel Investment Group was Renaissance Technologies, which amassed a stake valued at $144 million. Citadel Investment Group, Sylebra Capital Management, and Broad Peak Investment Holdings 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 Broad Peak Investment Holdings allocated the biggest weight to Lululemon Athletica inc. (NASDAQ:LULU), around 4.29% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, designating 1.91 percent of its 13F equity portfolio to LULU.

Due to the fact that Lululemon Athletica inc. (NASDAQ:LULU) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few fund managers that elected to cut their entire stakes by the end of the first quarter. Intriguingly, Jack Woodruff's Candlestick Capital Management dropped the biggest investment of all the hedgies watched by Insider Monkey, totaling about $43.5 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund cut about $25.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 9 funds by the end of the first quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lululemon Athletica inc. (NASDAQ:LULU) but similarly valued. We will take a look at American International Group Inc (NYSE:AIG), Digital Realty Trust, Inc. (NYSE:DLR), HP Inc. (NYSE:HPQ), Veeva Systems Inc (NYSE:VEEV), Amphenol Corporation (NYSE:APH), Trane Technologies plc (NYSE:TT), and T. Rowe Price Group, Inc. (NASDAQ:TROW). This group of stocks' market values resemble LULU's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIG,33,2471193,-8 DLR,22,296357,-1 HPQ,43,1526496,4 VEEV,39,966072,3 APH,42,1077461,1 TT,35,1092597,1 TROW,26,303927,-9 Average,34.3,1104872,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1105 million. That figure was $752 million in LULU's case. HP Inc. (NYSE:HPQ) is the most popular stock in this table. On the other hand Digital Realty Trust, Inc. (NYSE:DLR) is the least popular one with only 22 bullish hedge fund positions. Lululemon Athletica inc. (NASDAQ:LULU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LULU is 64.9. 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on LULU as the stock returned 13.3% since the end of Q1 (through 6/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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