Citi Loves These 4 Retail Stocks But Hedge Fund Metric Urges Caution

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In a research note to clients published recently, Citigroup Inc (NYSE:C) initiated coverage on several stocks from the retail sector. Describing retail as a “stormy sector”, analyst Paul Lejuez argued in his note that even though macro conditions remain volatile and headlines “change by the hour”, the consumer ” is fine (not great, not weak) but importantly, there is enough uncertainty to play a role into how we think about certain subsectors and companies within our universe.” Considering that the undertone of the note was far from being overly bullish, it was surprising that out of the 20 stocks on which Citi initiated coverage, only two were rated as a ‘Sell’. Which is why we at Insider Monkey decided to take a closer look at Citi’s top four picks from the sector and compare their popularity among the hedge funds we track. Read further to know if smart money agrees with Citi’s analysis on these particular retail stocks.

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We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by over 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

  1. Urban Outfitters, Inc. (NASDAQ:URBN)

– Investors with Long Positions (as of June 30): 28
– Aggregate Value of Investors’ Holdings (as of June 30): $266.82 Million

Although Citi thinks Urban Outfitters, Inc. (NASDAQ:URBN) is currently a ‘Buy’, and has a price target of $40 on the stock, which is 30% more than the stock’s current trading price, the popularity of the company among hedge funds doesn’t suggest that should be the case. During the second quarter, the number of funds we track that reported a stake in the company declined by one, while the aggregate value of their holdings in the company saw a drop of 34.18%, with those investors owning just 6.00% of the company’s shares. Though shares of Urban Outfitters, Inc. (NASDAQ:URBN) had a decent run during the first three months of the year, they have gradually declined since then and currently trade down by more than 10% year-to-date. The company was in the news for the wrong reasons this week after it asked employees at its home office to ‘volunteer’ during the weekend without being paid. Israel Englander‘s Millennium Management increased its stake in the company by almost 50-fold during the second quarter to nearly 1.28 million shares.

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