Is Hanesbrands Inc. (NYSE:HBI) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Hanesbrands Inc. (NYSE:HBI) an excellent investment now? Hedge funds are getting less bullish. The number of bullish hedge fund bets shrunk by 8 lately. Our calculations also showed that HBI isn't among the 30 most popular stocks among hedge funds (view the video below). HBI was in 22 hedge funds' portfolios at the end of June. There were 30 hedge funds in our database with HBI holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the key hedge fund action encompassing Hanesbrands Inc. (NYSE:HBI).
How are hedge funds trading Hanesbrands Inc. (NYSE:HBI)?
Heading into the third quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HBI over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Hanesbrands Inc. (NYSE:HBI), with a stake worth $240.3 million reported as of the end of March. Trailing Diamond Hill Capital was D E Shaw, which amassed a stake valued at $22.6 million. 12th Street Asset Management, Renaissance Technologies, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Because Hanesbrands Inc. (NYSE:HBI) has faced a decline in interest from the smart money, logic holds that there is a sect of hedge funds that elected to cut their positions entirely in the second quarter. It's worth mentioning that Gregg Moskowitz's Interval Partners said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, worth close to $39.2 million in stock. Ken Griffin's fund, Citadel Investment Group, also said goodbye to its stock, about $23.1 million worth. These transactions are interesting, as total hedge fund interest fell by 8 funds in the second quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Hanesbrands Inc. (NYSE:HBI) but similarly valued. We will take a look at CDK Global Inc (NASDAQ:CDK), Enable Midstream Partners LP (NYSE:ENBL), Texas Pacific Land Trust (NYSE:TPL), and KT Corporation (NYSE:KT). This group of stocks' market values are similar to HBI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDK,29,432354,6 ENBL,7,40315,2 TPL,16,1515971,5 KT,19,320612,0 Average,17.75,577313,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $577 million. That figure was $403 million in HBI's case. CDK Global Inc (NASDAQ:CDK) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 7 bullish hedge fund positions. Hanesbrands Inc. (NYSE:HBI) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HBI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HBI were disappointed as the stock returned -10.1% during the third quarter 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.