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Is Royal Caribbean Cruises Ltd. (RCL) A Good Stock To Buy?

Nina Todic

We at Insider Monkey have gone over 738 13F filings that hedge funds and famous value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article we look at what those investors think of Royal Caribbean Cruises Ltd. (NYSE:RCL).

Royal Caribbean Cruises Ltd. (NYSE:RCL) investors should be aware of a decrease in enthusiasm from smart money of late. Our calculations also showed that rcl isn't among the 30 most popular stocks among hedge funds.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

MILLENNIUM MANAGEMENT

Let's take a gander at the recent hedge fund action surrounding Royal Caribbean Cruises Ltd. (NYSE:RCL).

Hedge fund activity in Royal Caribbean Cruises Ltd. (NYSE:RCL)

At Q1's end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RCL over the last 15 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

No of Hedge Funds with RCL Positions

According to Insider Monkey's hedge fund database, D. E. Shaw's D E Shaw has the largest position in Royal Caribbean Cruises Ltd. (NYSE:RCL), worth close to $199 million, accounting for 0.3% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $145.7 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain Israel Englander's Millennium Management, John Overdeck and David Siegel's Two Sigma Advisors and Jacob Doft's Highline Capital Management.

Because Royal Caribbean Cruises Ltd. (NYSE:RCL) has faced falling interest from the aggregate hedge fund industry, it's safe to say that there exists a select few money managers who were dropping their positions entirely heading into Q3. Intriguingly, Ryan Frick and Oliver Evans's Dorsal Capital Management said goodbye to the biggest position of the "upper crust" of funds monitored by Insider Monkey, valued at about $61.1 million in stock. Ken Heebner's fund, Capital Growth Management, also dumped its stock, about $55.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 5 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Royal Caribbean Cruises Ltd. (NYSE:RCL) but similarly valued. These stocks are Hormel Foods Corporation (NYSE:HRL), The Hershey Company (NYSE:HSY), Wipro Limited (NYSE:WIT), and Arista Networks Inc (NYSE:ANET). This group of stocks' market caps are similar to RCL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HRL,15,138242,-3 HSY,22,541491,-11 WIT,11,106818,1 ANET,28,714547,5 Average,19,375275,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $375 million. That figure was $1573 million in RCL's case. Arista Networks Inc (NYSE:ANET) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Royal Caribbean Cruises Ltd. (NYSE:RCL) is more popular among hedge funds. 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 RCL as the stock returned 7.3% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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