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

Reymerlyn Martin

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and recouped their losses by the end of the first quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Herbalife Nutrition Ltd. (NYSE:HLF).

Is Herbalife Nutrition Ltd. (NYSE:HLF) ready to rally soon? Prominent investors are turning bullish. The number of bullish hedge fund bets advanced by 3 recently. Our calculations also showed that HLF isn't among the 30 most popular stocks among hedge funds. HLF was in 32 hedge funds' portfolios at the end of the first quarter of 2019. There were 29 hedge funds in our database with HLF holdings at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Carl Icahn

Let's take a glance at the key hedge fund action regarding Herbalife Nutrition Ltd. (NYSE:HLF).

Hedge fund activity in Herbalife Nutrition Ltd. (NYSE:HLF)

At Q1's end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HLF over the last 15 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

HLF_jun2019

More specifically, Icahn Capital LP was the largest shareholder of Herbalife Nutrition Ltd. (NYSE:HLF), with a stake worth $1866.7 million reported as of the end of March. Trailing Icahn Capital LP was Renaissance Technologies, which amassed a stake valued at $453.7 million. Deccan Value Advisors, D E Shaw, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in Herbalife Nutrition Ltd. (NYSE:HLF). Citadel Investment Group had $77.1 million invested in the company at the end of the quarter. John Hempton's Bronte Capital also made a $50 million investment in the stock during the quarter. The other funds with brand new HLF positions are Robert Henry Lynch's Aristeia Capital, Israel Englander's Millennium Management, and Howard Marks's Oaktree Capital Management.

Let's check out hedge fund activity in other stocks similar to Herbalife Nutrition Ltd. (NYSE:HLF). We will take a look at SAGE Therapeutics Inc (NASDAQ:SAGE), Formula One Group (NASDAQ:FWONK), Interpublic Group of Companies Inc (NYSE:IPG), and Farfetch Limited (NYSE:FTCH). 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 SAGE,28,552183,-1 FWONK,35,1781125,0 IPG,26,853779,-3 FTCH,43,558624,25 Average,33,936428,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $936 million. That figure was $3529 million in HLF's case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Interpublic Group of Companies Inc (NYSE:IPG) is the least popular one with only 26 bullish hedge fund positions. Herbalife Nutrition Ltd. (NYSE:HLF) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately HLF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HLF investors were disappointed as the stock returned -19.2% 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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