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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 Newell Brands Inc. (NASDAQ:NWL) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Newell Brands Inc. (NASDAQ:NWL) shareholders have witnessed an increase in enthusiasm from smart money recently. Newell Brands Inc. (NASDAQ:NWL) was in 33 hedge funds' portfolios at the end of June. The all time high for this statistics is 51. There were 24 hedge funds in our database with NWL holdings at the end of March. Our calculations also showed that NWL 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Carl Icahn of Icahn Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we're going to view the latest hedge fund action encompassing Newell Brands Inc. (NASDAQ:NWL).
How are hedge funds trading Newell Brands Inc. (NASDAQ:NWL)?
Heading into the third quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NWL over the last 20 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Carl Icahn's Icahn Capital LP has the number one position in Newell Brands Inc. (NASDAQ:NWL), worth close to $694 million, corresponding to 3.5% of its total 13F portfolio. The second most bullish fund manager is Richard S. Pzena of Pzena Investment Management, with a $384.8 million position; 2.5% of its 13F portfolio is allocated to the stock. Some other peers that are bullish comprise Gabriel Plotkin's Melvin Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Southport Management allocated the biggest weight to Newell Brands Inc. (NASDAQ:NWL), around 5.35% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, earmarking 5.16 percent of its 13F equity portfolio to NWL.
As aggregate interest increased, key hedge funds were leading the bulls' herd. Melvin Capital Management, managed by Gabriel Plotkin, assembled the most valuable position in Newell Brands Inc. (NASDAQ:NWL). Melvin Capital Management had $39.7 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also initiated a $12.6 million position during the quarter. The other funds with new positions in the stock are Constantinos J. Christofilis's Archon Capital Management, Steve Cohen's Point72 Asset Management, and Jonathan Dawson's Southport Management.
Let's also examine hedge fund activity in other stocks similar to Newell Brands Inc. (NASDAQ:NWL). These stocks are Lamar Advertising Company (NASDAQ:LAMR), Interpublic Group of Companies Inc (NYSE:IPG), American Airlines Group Inc (NASDAQ:AAL), RealPage, Inc. (NASDAQ:RP), Commerce Bancshares, Inc. (NASDAQ:CBSH), Dolby Laboratories, Inc. (NYSE:DLB), and UGI Corp (NYSE:UGI). This group of stocks' market values are similar to NWL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LAMR,44,419738,10 IPG,22,501395,1 AAL,47,436618,11 RP,39,739694,10 CBSH,16,52750,1 DLB,28,489505,-1 UGI,26,220118,-1 Average,31.7,408545,4.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $1244 million in NWL's case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 16 bullish hedge fund positions. Newell Brands Inc. (NASDAQ:NWL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NWL is 56.8. 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. 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 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 gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately NWL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NWL were disappointed as the stock returned 2.1% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.