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Hedge Funds Are Piling Into The Gap Inc. (GPS)

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded The Gap Inc. (NYSE:GPS) based on those filings.

Is The Gap Inc. (NYSE:GPS) a buy, sell, or hold? Prominent investors were becoming more confident. The number of long hedge fund bets moved up by 1 lately. The Gap Inc. (NYSE:GPS) was in 43 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GPS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 42 hedge funds in our database with GPS positions at the end of the first quarter.

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 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Robert Pohly of Samlyn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's view the recent hedge fund action encompassing The Gap Inc. (NYSE:GPS).

Do Hedge Funds Think GPS Is A Good Stock To Buy Now?

At Q2's end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GPS over the last 24 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.

Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in The Gap Inc. (NYSE:GPS). Arrowstreet Capital has a $244.6 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $148.2 million position; 0.4% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions consist of Alexander Mitchell's Scopus Asset Management, Paul Marshall and Ian Wace's Marshall Wace LLP and Richard S. Pzena's Pzena Investment Management. In terms of the portfolio weights assigned to each position Franklin Street Capital allocated the biggest weight to The Gap Inc. (NYSE:GPS), around 2.62% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, designating 1.92 percent of its 13F equity portfolio to GPS.

As aggregate interest increased, key money managers were leading the bulls' herd. Scopus Asset Management, managed by Alexander Mitchell, established the biggest call position in The Gap Inc. (NYSE:GPS). Scopus Asset Management had $33.7 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $27.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Joseph Samuels's Islet Management, Robert Pohly's Samlyn Capital, and Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as The Gap Inc. (NYSE:GPS) but similarly valued. These stocks are FactSet Research Systems Inc. (NYSE:FDS), Quanta Services Inc (NYSE:PWR), Steel Dynamics, Inc. (NASDAQ:STLD), Fidelity National Financial Inc (NYSE:FNF), Atmos Energy Corporation (NYSE:ATO), Guardant Health, Inc. (NASDAQ:GH), and The Boston Beer Company Inc (NYSE:SAM). This group of stocks' market valuations are similar to GPS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FDS,28,490774,-2 PWR,40,945202,7 STLD,26,538358,0 FNF,34,1303820,-5 ATO,18,83813,3 GH,49,1708966,8 SAM,42,933501,13 Average,33.9,857776,3.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $858 million. That figure was $911 million in GPS's case. Guardant Health, Inc. (NASDAQ:GH) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 18 bullish hedge fund positions. The Gap Inc. (NYSE:GPS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GPS is 76.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately GPS wasn't nearly as popular as these 5 stocks and hedge funds that were betting on GPS were disappointed as the stock returned -29.7% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.