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Were Hedge Funds Right About Souring On Under Armour Inc (UA)?

Reymerlyn Martin

Is Under Armour Inc (NYSE:UA) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Under Armour Inc (NYSE:UA) a splendid stock to buy now? Money managers are taking a bearish view. The number of bullish hedge fund bets decreased by 6 recently. Our calculations also showed that UA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). UA was in 32 hedge funds' portfolios at the end of September. There were 38 hedge funds in our database with UA positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the 21st century investor’s toolkit there are plenty of indicators shareholders can use to value stocks. A duo of the most useful indicators are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the top fund managers can outpace their index-focused peers by a solid amount (see the details here).

[caption id="attachment_26092" align="aligncenter" width="600"] Joel Greenblatt of Gotham Asset Management[/caption]

GOTHAM ASSET MANAGEMENT

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the latest hedge fund action surrounding Under Armour Inc (NYSE:UA).

What does smart money think about Under Armour Inc (NYSE:UA)?

At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in UA 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.

UA_dec2019

Among these funds, Adage Capital Management held the most valuable stake in Under Armour Inc (NYSE:UA), which was worth $334.5 million at the end of the third quarter. On the second spot was Bares Capital Management which amassed $187.3 million worth of shares. Alyeska Investment Group, D E Shaw, and Balyasny Asset 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 Bares Capital Management allocated the biggest weight to Under Armour Inc (NYSE:UA), around 5.62% of its portfolio. Chiron Investment Management is also relatively very bullish on the stock, designating 2.84 percent of its 13F equity portfolio to UA.

Seeing as Under Armour Inc (NYSE:UA) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedgies that decided to sell off their full holdings heading into Q4. At the top of the heap, Steve Cohen's Point72 Asset Management cut the largest investment of the 750 funds watched by Insider Monkey, valued at close to $12.9 million in stock. Simon Sadler's fund, Segantii Capital, also cut its stock, about $10.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 6 funds heading into Q4.

Let's go over hedge fund activity in other stocks similar to Under Armour Inc (NYSE:UA). These stocks are News Corp (NASDAQ:NWSA), Coupa Software Incorporated (NASDAQ:COUP), Companhia de Saneamento Basico (NYSE:SBS), and Ubiquiti Inc. (NYSE:UI). This group of stocks' market caps match UA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NWSA,30,428964,7 COUP,55,2562874,-2 SBS,11,372148,-1 UI,16,182015,-1 Average,28,886500,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $887 million. That figure was $921 million in UA's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. Under Armour Inc (NYSE:UA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UA were disappointed as the stock returned -4.6% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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