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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. 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 Coty Inc (NYSE:COTY).
Is Coty Inc (NYSE:COTY) a superb investment today? The best stock pickers are in a bullish mood. The number of long hedge fund bets inched up by 4 lately. Our calculations also showed that COTY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Ricky Sandler of Eminence Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a look at the fresh hedge fund action surrounding Coty Inc (NYSE:COTY).
How are hedge funds trading Coty Inc (NYSE:COTY)?
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in COTY a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Eminence Capital, managed by Ricky Sandler, holds the number one position in Coty Inc (NYSE:COTY). Eminence Capital has a $93.6 million position in the stock, comprising 1.1% of its 13F portfolio. Coming in second is JNE Partners, managed by Jonathan Esfandi, which holds a $50.6 million position; 32.6% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish encompass Ken Griffin's Citadel Investment Group, D. E. Shaw's D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position JNE Partners allocated the biggest weight to Coty Inc (NYSE:COTY), around 32.64% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, setting aside 6.57 percent of its 13F equity portfolio to COTY.
As industrywide interest jumped, some big names have been driving this bullishness. Eminence Capital, managed by Ricky Sandler, assembled the most outsized position in Coty Inc (NYSE:COTY). Eminence Capital had $93.6 million invested in the company at the end of the quarter. Jonathan Esfandi's JNE Partners also made a $50.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Dennis Goldstein's Rip Road Capital, Michael Gelband's ExodusPoint Capital, and Minhua Zhang's Weld Capital Management.
Let's check out hedge fund activity in other stocks similar to Coty Inc (NYSE:COTY). We will take a look at Euronet Worldwide, Inc. (NASDAQ:EEFT), Molina Healthcare, Inc. (NYSE:MOH), Cable One Inc (NYSE:CABO), and Ionis Pharmaceuticals, Inc. (NASDAQ:IONS). All of these stocks' market caps resemble COTY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EEFT,47,410495,11 MOH,35,1277477,8 CABO,19,578805,5 IONS,27,444148,1 Average,32,677731,6.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $678 million. That figure was $347 million in COTY's case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 19 bullish hedge fund positions. Coty Inc (NYSE:COTY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately COTY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); COTY investors were disappointed as the stock returned -46.8% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.