American Eagle Outfitters Inc. (AEO) vs. Top 20 Hedge Fund Stocks in 2019

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding American Eagle Outfitters Inc. (NYSE:AEO) and see how the stock performed in comparison to hedge funds’ consensus picks.

Is American Eagle Outfitters Inc. (NYSE:AEO) a buy here? Hedge funds are turning bullish. The number of long hedge fund positions went up by 7 recently. Our calculations also showed that AEO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). AEO was in 28 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with AEO holdings at the end of the previous quarter.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to take a look at the fresh hedge fund action regarding American Eagle Outfitters Inc. (NYSE:AEO).

How have hedgies been trading American Eagle Outfitters Inc. (NYSE:AEO)?

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AEO over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in American Eagle Outfitters Inc. (NYSE:AEO) was held by Renaissance Technologies, which reported holding $88.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $51.3 million position. Other investors bullish on the company included Arrowstreet Capital, Platinum Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position DC Capital Partners allocated the biggest weight to American Eagle Outfitters Inc. (NYSE:AEO), around 14.23% of its 13F portfolio. Buckingham Capital Management is also relatively very bullish on the stock, earmarking 1.14 percent of its 13F equity portfolio to AEO.

As one would reasonably expect, key money managers have jumped into American Eagle Outfitters Inc. (NYSE:AEO) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in American Eagle Outfitters Inc. (NYSE:AEO). Balyasny Asset Management had $12.2 million invested in the company at the end of the quarter. Philippe Laffont’s Coatue Management also initiated a $3.6 million position during the quarter. The other funds with brand new AEO positions are Steve Cohen’s Point72 Asset Management, Minhua Zhang’s Weld Capital Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as American Eagle Outfitters Inc. (NYSE:AEO) but similarly valued. These stocks are Vonage Holdings Corp. (NASDAQ:VG), Main Street Capital Corporation (NYSE:MAIN), SITE Centers Corp. (NYSE:SITC), and Delek US Holdings, Inc. (NYSE:DK). This group of stocks’ market caps match AEO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VG 30 369454 -9
MAIN 4 13169 0
SITC 11 54558 -4
DK 21 87212 3
Average 16.5 131098 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $359 million in AEO’s case. Vonage Holdings Corp. (NASDAQ:VG) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 4 bullish hedge fund positions. American Eagle Outfitters Inc. (NYSE:AEO) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately AEO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AEO were disappointed as the stock returned -22.1% in 2019 and trailed 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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