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Here is What Hedge Funds Think About American Eagle Outfitters (AEO)

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Bullish options trade on American Eagle looks for shares to extend runAmerican Eagle Outfitters (NYSE:AEO) has experienced a decrease in hedge fund sentiment lately.

According to most stock holders, hedge funds are viewed as underperforming, old financial tools of years past. While there are more than 8000 funds in operation today, we hone in on the bigwigs of this club, close to 450 funds. It is widely believed that this group controls most of all hedge funds’ total asset base, and by watching their best equity investments, we have unearthed a few investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as key, optimistic insider trading activity is a second way to parse down the marketplace. As the old adage goes: there are lots of reasons for an upper level exec to downsize shares of his or her company, but just one, very simple reason why they would buy. Various empirical studies have demonstrated the useful potential of this strategy if “monkeys” understand what to do (learn more here).

With all of this in mind, we’re going to take a glance at the key action surrounding American Eagle Outfitters (NYSE:AEO).

What have hedge funds been doing with American Eagle Outfitters (NYSE:AEO)?

At Q1’s end, a total of 23 of the hedge funds we track held long positions in this stock, a change of -23% from the first quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully.

When looking at the hedgies we track, Chuck Royce’s Royce & Associates had the biggest position in American Eagle Outfitters (NYSE:AEO), worth close to $210.3 million, comprising 0.6% of its total 13F portfolio. On Royce & Associates’s heels is Jim Simons of Renaissance Technologies, with a $44.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedgies that are bullish include Cliff Asness’s AQR Capital Management, Glenn Russell Dubin’s Highbridge Capital Management and David Keidan’s Buckingham Capital Management.

Because American Eagle Outfitters (NYSE:AEO) has experienced falling interest from hedge fund managers, logic holds that there exists a select few money managers that slashed their positions entirely at the end of the first quarter. It’s worth mentioning that Donald Chiboucis’s Columbus Circle Investors dumped the largest investment of the “upper crust” of funds we track, valued at about $20.9 million in stock.. D. E. Shaw’s fund, D E Shaw, also cut its stock, about $20.3 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 7 funds at the end of the first quarter.

What have insiders been doing with American Eagle Outfitters (NYSE:AEO)?

Insider buying is at its handiest when the company in question has experienced transactions within the past six months. Over the latest half-year time period, American Eagle Outfitters (NYSE:AEO) has seen zero unique insiders purchasing, and 6 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to American Eagle Outfitters (NYSE:AEO). These stocks are Foot Locker, Inc. (NYSE:FL), Chico’s FAS, Inc. (NYSE:CHS), DSW Inc. (NYSE:DSW), Ascena Retail Group Inc (NASDAQ:ASNA), and Abercrombie & Fitch Co. (NYSE:ANF). This group of stocks are the members of the apparel stores industry and their market caps resemble AEO’s market cap.

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