At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards L Brands Inc (NYSE:LB) at the end of the second quarter and determine whether the smart money was really smart about this stock.
L Brands Inc (NYSE:LB) has experienced an increase in support from the world's most elite money managers lately. L Brands Inc (NYSE:LB) was in 42 hedge funds' portfolios at the end of June. The all time high for this statistics is 46. There were 39 hedge funds in our database with LB holdings at the end of March. Our calculations also showed that LB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are dozens of metrics market participants put to use to analyze their holdings. Two of the less utilized metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the elite money managers can outpace their index-focused peers by a very impressive margin (see the details here).
Lee Ainslie of Maverick Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let's take a look at the new hedge fund action surrounding L Brands Inc (NYSE:LB).
How are hedge funds trading L Brands Inc (NYSE:LB)?
At Q2's end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards LB over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Melvin Capital Management, managed by Gabriel Plotkin, holds the biggest position in L Brands Inc (NYSE:LB). Melvin Capital Management has a $414.7 million position in the stock, comprising 2.5% of its 13F portfolio. Coming in second is Lone Pine Capital, managed by Stephen Mandel (founder), which holds a $393.2 million position; 2% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish comprise John Armitage's Egerton Capital Limited, Jack Woodruff's Candlestick Capital Management and Robert Pitts's Steadfast Capital Management. In terms of the portfolio weights assigned to each position Barington Capital Group allocated the biggest weight to L Brands Inc (NYSE:LB), around 20.72% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, designating 8.59 percent of its 13F equity portfolio to LB.
As industrywide interest jumped, specific money managers have jumped into L Brands Inc (NYSE:LB) headfirst. Renaissance Technologies, managed by Jim Simons (founder), initiated the most valuable position in L Brands Inc (NYSE:LB). Renaissance Technologies had $34.6 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $21.3 million position during the quarter. The other funds with brand new LB positions are Mitch Kuflik and Rob Sobel's Brahman Capital, Israel Englander's Millennium Management, and Steven Tananbaum's GoldenTree Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to L Brands Inc (NYSE:LB). We will take a look at AGCO Corporation (NYSE:AGCO), Penn National Gaming, Inc (NASDAQ:PENN), Emergent Biosolutions Inc (NYSE:EBS), Littelfuse, Inc. (NASDAQ:LFUS), MorphoSys AG (NASDAQ:MOR), LogMeIn Inc (NASDAQ:LOGM), and Redfin Corporation (NASDAQ:RDFN). This group of stocks' market valuations resemble LB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGCO,21,144524,2 PENN,34,429102,16 EBS,21,119854,4 LFUS,24,316882,2 MOR,6,12533,1 LOGM,31,785090,3 RDFN,26,203341,6 Average,23.3,287332,4.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $1473 million in LB's case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks L Brands Inc (NYSE:LB) is more popular among hedge funds. Our overall hedge fund sentiment score for LB is 85.4. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on LB as the stock returned 96.4% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.