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The Gap Inc. (NYSE:GPS): Insiders Are Dumping, Should You?

Is The Gap Inc. (NYSE:GPS) an exceptional stock to buy now? Hedge funds are becoming less hopeful. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience

The Gap Inc. (NYSE:GPS)

To the average investor, there are a multitude of methods investors can use to monitor Mr. Market. Some of the most underrated are hedge fund and insider trading activity. At Insider Monkey, our research analyses have shown that, historically, those who follow the best picks of the top investment managers can outpace the S&P 500 by a significant amount (see just how much).

Equally as integral, positive insider trading sentiment is another way to parse down the world of equities. Just as you’d expect, there are lots of incentives for an upper level exec to downsize shares of his or her company, but just one, very simple reason why they would behave bullishly. Several academic studies have demonstrated the useful potential of this strategy if piggybackers know where to look (learn more here).

With all of this in mind, let’s take a glance at the recent action surrounding The Gap Inc. (NYSE:GPS).

What does the smart money think about The Gap Inc. (NYSE:GPS)?

Heading into 2013, a total of 29 of the hedge funds we track were long in this stock, a change of 0% from the third quarter. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes considerably.

When looking at the hedgies we track, Stephen Mandel’s Lone Pine Capital had the biggest position in The Gap Inc. (NYSE:GPS), worth close to $575 million billion, comprising 3.6% of its total 13F portfolio. Sitting at the No. 2 spot is Edward Lampert of ESL Investments, with a $445 million position; the fund has 11.6% of its 13F portfolio invested in the stock. Some other hedgies that hold long positions include Cliff Asness’s AQR Capital Management, Jim Simons’s Renaissance Technologies and Jean-Marie Eveillard’s First Eagle Investment Management.

Judging by the fact that The Gap Inc. (NYSE:GPS) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers who sold off their entire stakes in Q4. Intriguingly, Donald Chiboucis’s Columbus Circle Investors sold off the largest stake of the 450+ funds we monitor, totaling close to $67 million in stock.. Panayotis æTakisÆ Sparaggis’s fund, Alkeon Capital Management, also cut its stock, about $59 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with The Gap Inc. (NYSE:GPS)?

Bullish insider trading is at its handiest when the company in focus has seen transactions within the past 180 days. Over the latest 180-day time frame, The Gap Inc. (NYSE:GPS) has seen zero unique insiders purchasing, and 7 insider sales (see the details of insider trades here).

With the returns exhibited by the aforementioned strategies, retail investors must always monitor hedge fund and insider trading sentiment, and The Gap Inc. (NYSE:GPS) shareholders fit into this picture quite nicely.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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