Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Hanesbrands Inc. (NYSE:HBI) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is Hanesbrands Inc. (NYSE:HBI) a cheap investment now? Hedge funds are betting on the stock. The number of long hedge fund bets increased by 6 in recent months. Our calculations also showed that HBI 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.
[caption id="attachment_758429" align="aligncenter" width="399"] Ric Dillon of Diamond Hill 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. Now we're going to take a glance at the fresh hedge fund action surrounding Hanesbrands Inc. (NYSE:HBI).
Hedge fund activity in Hanesbrands Inc. (NYSE:HBI)
At Q4's end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the third quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in HBI a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Hanesbrands Inc. (NYSE:HBI) was held by Diamond Hill Capital, which reported holding $224.3 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $214.9 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Intrepid Capital Management allocated the biggest weight to Hanesbrands Inc. (NYSE:HBI), around 3.72% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, dishing out 2.92 percent of its 13F equity portfolio to HBI.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Hanesbrands Inc. (NYSE:HBI) headfirst. Renaissance Technologies, created the largest position in Hanesbrands Inc. (NYSE:HBI). Renaissance Technologies had $30.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $27.1 million investment in the stock during the quarter. The other funds with brand new HBI positions are Israel Englander's Millennium Management, Paul Tudor Jones's Tudor Investment Corp, and Donald Sussman's Paloma Partners.
Let's check out hedge fund activity in other stocks similar to Hanesbrands Inc. (NYSE:HBI). These stocks are Kirby Corporation (NYSE:KEX), Exelixis, Inc. (NASDAQ:EXEL), JBG SMITH Properties (NYSE:JBGS), and Cimarex Energy Co (NYSE:XEC). This group of stocks' market caps are similar to HBI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KEX,26,711162,5 EXEL,23,797055,-7 JBGS,19,269769,-1 XEC,33,976357,1 Average,25.25,688586,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $689 million. That figure was $736 million in HBI's case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Hanesbrands Inc. (NYSE:HBI) is more popular among hedge funds. 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 17.4% in 2020 through March 25th and still beat the market by 5.5 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 -39.3% during the first two and a half months of 2020 (through March 25th) 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.