Smart Money Is Not Sold On Under Armour Inc (UA) Turnaround

Is Under Armour Inc (NYSE:UA) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments. More recently the top 30 mid-cap stocks (market caps between $1 billion and $10 billion) among hedge funds delivered an average return of 18% during the last four quarters (S&P 500 Index funds returned only 7.6% during the same period).

Is Under Armour Inc (NYSE:UA) a buy right now? The smart money is taking a bearish view. The number of bullish hedge fund bets were cut by 3 in recent months. UA was in 28 hedge funds’ portfolios at the end of the third quarter of 2016. There were 31 hedge funds in our database with UA holdings at the end of the previous quarter. At the end of this article we will also compare UA to other stocks including Hartford Financial Services Group Inc (NYSE:HIG), International Paper Company (NYSE:IP), and Realty Income Corp (NYSE:O) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 10% dip from one quarter earlier. That followed a large Q2 increase however, so ownership still remains solidly above levels from earlier quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the most valuable position in Under Armour Inc (NYSE:UA), worth close to $64.6 million. Coming in second is Balyasny Asset Management, managed by Dmitry Balyasny, which holds a $61.5 million position. Remaining peers that are bullish consist of Michael Hintze’s CQS Cayman LP, Principal Global Investors’ Columbus Circle Investors and Kamyar Khajavi’s MIK Capital.

Since Under Armour Inc (NYSE:UA) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of fund managers who sold off their positions entirely by the end of the third quarter. Interestingly, Alexander Mitchell’s Scopus Asset Management cut the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $65.4 million in call options, while Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped its call options position worth about $29.5 million (which retaining its long position). These transactions are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Under Armour Inc (NYSE:UA) but similarly valued. We will take a look at Hartford Financial Services Group Inc (NYSE:HIG), International Paper Company (NYSE:IP), Realty Income Corp (NYSE:O), and Analog Devices, Inc. (NASDAQ:ADI). This group of stocks’ market values are similar to UA’s market value.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $738 million. That figure was $528 million in UA’s case. Hartford Financial Services Group Inc (NYSE:HIG) is the most popular stock in this table. On the other hand Realty Income Corp (NYSE:O) is the least popular one with only 20 bullish hedge fund positions. Under Armour Inc (NYSE:UA) 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. In this regard HIG might be a better candidate to consider a long position.

Disclosure: None