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Hedge Funds Have Never Been This Bullish On The Estee Lauder Companies Inc (EL)

Nina Todic

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about The Estee Lauder Companies Inc (NYSE:EL) in this article.

Is The Estee Lauder Companies Inc (NYSE:EL) a bargain? Prominent investors are taking an optimistic view. The number of long hedge fund positions inched up by 7 in recent months. Our calculations also showed that EL isn't among the 30 most popular stocks among hedge funds. EL was in 43 hedge funds' portfolios at the end of the third quarter of 2019. There were 36 hedge funds in our database with EL positions at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_25717" align="aligncenter" width="440"] Steven Cohen of Point72 Asset Management[/caption]

Steven Cohen of Point72 Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the fresh hedge fund action surrounding The Estee Lauder Companies Inc (NYSE:EL).

How have hedgies been trading The Estee Lauder Companies Inc (NYSE:EL)?

At the end of the third quarter, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EL over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with EL Positions

More specifically, Renaissance Technologies was the largest shareholder of The Estee Lauder Companies Inc (NYSE:EL), with a stake worth $555.5 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $381.7 million. Arrowstreet Capital, Melvin Capital Management, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tairen Capital allocated the biggest weight to The Estee Lauder Companies Inc (NYSE:EL), around 5.42% of its portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, setting aside 4.38 percent of its 13F equity portfolio to EL.

As aggregate interest increased, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, established the most valuable position in The Estee Lauder Companies Inc (NYSE:EL). Millennium Management had $76.7 million invested in the company at the end of the quarter. Larry Chen and Terry Zhang's Tairen Capital also made a $36.8 million investment in the stock during the quarter. The other funds with brand new EL positions are Jeffrey Talpins's Element Capital Management, Matthew Tewksbury's Stevens Capital Management, and Paul Tudor Jones's Tudor Investment Corp.

Let's now review hedge fund activity in other stocks similar to The Estee Lauder Companies Inc (NYSE:EL). We will take a look at China Petroleum & Chemical Corporation (NYSE:SNP), Caterpillar Inc. (NYSE:CAT), Enbridge Inc (NYSE:ENB), and Morgan Stanley (NYSE:MS). This group of stocks' market values match EL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNP,13,178003,2 CAT,37,2758115,-8 ENB,18,515524,-2 MS,61,4162955,1 Average,32.25,1903649,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1904 million. That figure was $1851 million in EL's case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corporation (NYSE:SNP) is the least popular one with only 13 bullish hedge fund positions. The Estee Lauder Companies Inc (NYSE:EL) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately EL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EL were disappointed as the stock returned -2.9% during the fourth quarter (through 11/22) 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.

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