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Here is What Hedge Funds Think About Herbalife Nutrition Ltd. (HLF)

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Herbalife Nutrition Ltd. (NYSE:HLF).

Hedge fund interest in Herbalife Nutrition Ltd. (NYSE:HLF) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that HLF isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as TFS Financial Corporation (NASDAQ:TFSL), Fisker Inc. (NYSE:FSR), and PLDT Inc. (NYSE:PHI) to gather more data points.

Today there are tons of metrics shareholders can use to evaluate their stock investments. A pair of the less known metrics are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can beat the market by a healthy amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

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At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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 regarding Herbalife Nutrition Ltd. (NYSE:HLF).

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

Heading into the third quarter of 2021, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HLF over the last 24 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Herbalife Nutrition Ltd. (NYSE:HLF), which was worth $469 million at the end of the second quarter. On the second spot was Route One Investment Company which amassed $418.3 million worth of shares. Alua Capital Management, Deccan Value Advisors, and Bronte Capital 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 General Equity Partners allocated the biggest weight to Herbalife Nutrition Ltd. (NYSE:HLF), around 14.62% of its 13F portfolio. Alua Capital Management is also relatively very bullish on the stock, earmarking 14.33 percent of its 13F equity portfolio to HLF.

Because Herbalife Nutrition Ltd. (NYSE:HLF) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of money managers that decided to sell off their entire stakes by the end of the second quarter. It's worth mentioning that Carl Icahn's Icahn Capital LP said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, worth an estimated $355.7 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund sold off about $27.6 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to Herbalife Nutrition Ltd. (NYSE:HLF). These stocks are TFS Financial Corporation (NASDAQ:TFSL), Fisker Inc. (NYSE:FSR), PLDT Inc. (NYSE:PHI), Celsius Holdings, Inc. (NASDAQ:CELH), Acadia Healthcare Company Inc (NASDAQ:ACHC), Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), and MGM Growth Properties LLC (NYSE:MGP). This group of stocks' market caps are closest to HLF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TFSL,9,143366,3 FSR,16,256224,-6 PHI,5,88800,1 CELH,20,232853,5 ACHC,32,600143,2 IONS,24,709672,1 MGP,29,505366,-5 Average,19.3,362346,0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $362 million. That figure was $2095 million in HLF's case. Acadia Healthcare Company Inc (NASDAQ:ACHC) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Herbalife Nutrition Ltd. (NYSE:HLF) is more popular among hedge funds. Our overall hedge fund sentiment score for HLF is 82.3. 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. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Unfortunately HLF wasn't nearly as popular as these 5 stocks and hedge funds that were betting on HLF were disappointed as the stock returned -18% since the end of the second quarter (through 10/11) 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 most of these stocks already outperformed the market since 2019.

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