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Is Tapestry, Inc. (TPR) A Good Stock To Buy?

Nina Todic

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Tapestry, Inc. (NYSE:TPR).

Tapestry, Inc. (NYSE:TPR) was in 29 hedge funds' portfolios at the end of March. TPR investors should be aware of a decrease in enthusiasm from smart money lately. There were 38 hedge funds in our database with TPR positions at the end of the previous quarter. Our calculations also showed that tpr isn't among the 30 most popular stocks among hedge funds.

If you'd ask most shareholders, hedge funds are assumed to be slow, outdated investment vehicles of the past. While there are over 8000 funds with their doors open today, We hone in on the leaders of this group, around 750 funds. These investment experts orchestrate the majority of all hedge funds' total capital, and by watching their finest picks, Insider Monkey has identified a few investment strategies that have historically defeated the broader indices. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

John Overdeck of Two Sigma

We're going to take a glance at the latest hedge fund action regarding Tapestry, Inc. (NYSE:TPR).

How are hedge funds trading Tapestry, Inc. (NYSE:TPR)?

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TPR over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TPR Positions

More specifically, AQR Capital Management was the largest shareholder of Tapestry, Inc. (NYSE:TPR), with a stake worth $98.5 million reported as of the end of March. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $52.8 million. Two Sigma Advisors, Citadel Investment Group, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Tapestry, Inc. (NYSE:TPR) has faced falling interest from the entirety of the hedge funds we track, we can see that there were a few money managers who sold off their full holdings heading into Q3. It's worth mentioning that Alexander Mitchell's Scopus Asset Management dumped the largest investment of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $16.9 million in stock, and Alexander Mitchell's Scopus Asset Management was right behind this move, as the fund dropped about $10.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Tapestry, Inc. (NYSE:TPR). These stocks are Packaging Corporation Of America (NYSE:PKG), PG&E Corporation (NYSE:PCG), Erie Indemnity Company (NASDAQ:ERIE), and F5 Networks, Inc. (NASDAQ:FFIV). This group of stocks' market valuations are closest to TPR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PKG,26,212243,-7 PCG,72,4787090,14 ERIE,17,98634,6 FFIV,24,1046558,0 Average,34.75,1536131,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1536 million. That figure was $372 million in TPR's case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 17 bullish hedge fund positions. Tapestry, Inc. (NYSE:TPR) 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 TPR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TPR investors were disappointed as the stock returned -12.7% 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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