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Here’s What Hedge Funds Think About Lululemon Athletica inc. (LULU)

Reymerlyn Martin

"The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery," This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Is Lululemon Athletica inc. (NASDAQ:LULU) ready to rally soon? Money managers are becoming more confident. The number of long hedge fund positions inched up by 6 lately. Our calculations also showed that LULU isn't among the 30 most popular stocks among hedge funds.

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.

Gabriel Plotkin Melvin Capital Management

We're going to analyze the fresh hedge fund action regarding Lululemon Athletica inc. (NASDAQ:LULU).

What have hedge funds been doing with Lululemon Athletica inc. (NASDAQ:LULU)?

At Q1's end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the fourth quarter of 2018. On the other hand, there were a total of 34 hedge funds with a bullish position in LULU a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

LULU_jun2019

Among these funds, AQR Capital Management held the most valuable stake in Lululemon Athletica inc. (NASDAQ:LULU), which was worth $394.4 million at the end of the first quarter. On the second spot was D E Shaw which amassed $252.4 million worth of shares. Moreover, Arrowstreet Capital, Melvin Capital Management, and Citadel Investment Group were also bullish on Lululemon Athletica inc. (NASDAQ:LULU), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, specific money managers were leading the bulls' herd. Melvin Capital Management, managed by Gabriel Plotkin, initiated the most outsized position in Lululemon Athletica inc. (NASDAQ:LULU). Melvin Capital Management had $131.1 million invested in the company at the end of the quarter. Jim Simons's Renaissance Technologies also initiated a $107.1 million position during the quarter. The other funds with brand new LULU positions are Leon Shaulov's Maplelane Capital, Simon Sadler's Segantii Capital, and Joseph Samuels's Islet Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Lululemon Athletica inc. (NASDAQ:LULU) but similarly valued. We will take a look at Imperial Oil Limited (NYSEAMEX:IMO), United Continental Holdings Inc (NYSE:UAL), Cintas Corporation (NASDAQ:CTAS), and FleetCor Technologies, Inc. (NYSE:FLT). This group of stocks' market valuations are closest to LULU's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMO,17,85055,-2 UAL,49,6333893,0 CTAS,27,525445,-2 FLT,34,1733702,1 Average,31.75,2169524,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $2170 million. That figure was $1770 million in LULU's case. United Continental Holdings Inc (NYSE:UAL) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSEAMEX:IMO) is the least popular one with only 17 bullish hedge fund positions. Lululemon Athletica inc. (NASDAQ:LULU) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on LULU, though not to the same extent, as the stock returned 0% during the same time frame and outperformed the market as well.

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

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