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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Herbalife Nutrition Ltd. (NYSE:HLF).
Is HLF stock a buy or sell? Hedge funds were in an optimistic mood. The number of bullish hedge fund bets inched up by 5 in recent months. Herbalife Nutrition Ltd. (NYSE:HLF) was in 41 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 44. Our calculations also showed that HLF isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 36 hedge funds in our database with HLF positions at the end of the third quarter.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 website. Now we're going to check out the recent hedge fund action encompassing Herbalife Nutrition Ltd. (NYSE:HLF).
Do Hedge Funds Think HLF Is A Good Stock To Buy Now?
At the end of December, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in HLF over the last 22 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.
Among these funds, Icahn Capital LP held the most valuable stake in Herbalife Nutrition Ltd. (NYSE:HLF), which was worth $985.3 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $521.2 million worth of shares. Route One Investment Company, Deccan Value Advisors, and Alua Capital 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 Bronte Capital allocated the biggest weight to Herbalife Nutrition Ltd. (NYSE:HLF), around 15.65% of its 13F portfolio. General Equity Partners is also relatively very bullish on the stock, setting aside 14.38 percent of its 13F equity portfolio to HLF.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Herbalife Nutrition Ltd. (NYSE:HLF) headfirst. Alua Capital Management, managed by Tom Purcell and Marco Tablada, created the largest position in Herbalife Nutrition Ltd. (NYSE:HLF). Alua Capital Management had $138.4 million invested in the company at the end of the quarter. Kenneth Mario Garschina's Mason Capital Management also initiated a $109.1 million position during the quarter. The other funds with brand new HLF positions are Steve Cohen's Point72 Asset Management, Dmitry Balyasny's Balyasny Asset Management, and Richard Schimel and Lawrence Sapanski's Cinctive Capital Management.
Let's check out hedge fund activity in other stocks similar to Herbalife Nutrition Ltd. (NYSE:HLF). These stocks are The Timken Company (NYSE:TKR), MSA Safety Incorporated (NYSE:MSA), 1Life Healthcare, Inc. (NASDAQ:ONEM), Life Storage, Inc. (NYSE:LSI), BRP Inc. (NASDAQ:DOOO), Columbia Sportswear Company (NASDAQ:COLM), and Elbit Systems Ltd. (NASDAQ:ESLT). All of these 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 TKR,34,265044,0 MSA,13,18744,-1 ONEM,30,787070,8 LSI,17,142613,-1 DOOO,15,181614,3 COLM,14,112803,-5 ESLT,5,25092,1 Average,18.3,218997,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $2726 million in HLF's case. The Timken Company (NYSE:TKR) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) 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 88. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Unfortunately HLF wasn't nearly as popular as these 30 stocks and hedge funds that were betting on HLF were disappointed as the stock returned -4.7% since the end of the fourth quarter (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.