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Is URBN A Good Stock To Buy According To Hedge Funds?

Asma UL Husna
·6 min read

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Urban Outfitters, Inc. (NASDAQ:URBN).

Is URBN a good stock to buy now? Money managers were taking an optimistic view. The number of bullish hedge fund bets inched up by 2 lately. Urban Outfitters, Inc. (NASDAQ:URBN) was in 22 hedge funds' portfolios at the end of September. The all time high for this statistic is 34. Our calculations also showed that URBN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by 66 percentage points since March 2017 (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.

COATUE MANAGEMENT
COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. With all of this in mind let's take a glance at the recent hedge fund action regarding Urban Outfitters, Inc. (NASDAQ:URBN).

Do Hedge Funds Think URBN Is A Good Stock To Buy Now?

At third quarter's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in URBN 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.

Among these funds, Coatue Management held the most valuable stake in Urban Outfitters, Inc. (NASDAQ:URBN), which was worth $46.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $35.2 million worth of shares. Arrowstreet Capital, Kehrs Ridge Capital, and GLG Partners 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 Kehrs Ridge Capital allocated the biggest weight to Urban Outfitters, Inc. (NASDAQ:URBN), around 1.06% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.32 percent of its 13F equity portfolio to URBN.

Consequently, specific money managers have been driving this bullishness. Coatue Management, managed by Philippe Laffont, initiated the most outsized position in Urban Outfitters, Inc. (NASDAQ:URBN). Coatue Management had $46.7 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $35.2 million position during the quarter. The other funds with new positions in the stock are Brian Scudieri's Kehrs Ridge Capital, Joel Greenblatt's Gotham Asset Management, and Hoon Kim's Quantinno Capital.

Let's now review hedge fund activity in other stocks similar to Urban Outfitters, Inc. (NASDAQ:URBN). These stocks are Cabot Corporation (NYSE:CBT), eHealth, Inc. (NASDAQ:EHTH), Grupo Financiero Galicia S.A. (NASDAQ:GGAL), Intra-Cellular Therapies Inc (NASDAQ:ITCI), Sunoco LP (NYSE:SUN), BankUnited Inc (NYSE:BKU), and Bank of Hawaii Corporation (NYSE:BOH). This group of stocks' market valuations match URBN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBT,22,71210,4 EHTH,35,372411,5 GGAL,8,17959,-3 ITCI,26,315998,13 SUN,6,14951,2 BKU,14,103775,-2 BOH,21,69967,3 Average,18.9,138039,3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $143 million in URBN's case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 6 bullish hedge fund positions. Urban Outfitters, Inc. (NASDAQ:URBN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for URBN is 54. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on URBN as the stock returned 25.3% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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