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Did Hedge Funds Make The Right Call On Newell Brands Inc. (NWL)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Newell Brands Inc. (NASDAQ:NWL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Newell Brands Inc. (NASDAQ:NWL) undervalued? Prominent investors were getting less bullish. The number of bullish hedge fund positions dropped by 7 in recent months. Our calculations also showed that NWL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). NWL was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 31 hedge funds in our database with NWL positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the fresh hedge fund action regarding Newell Brands Inc. (NASDAQ:NWL).

What does smart money think about Newell Brands Inc. (NASDAQ:NWL)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in NWL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Icahn Capital LP was the largest shareholder of Newell Brands Inc. (NASDAQ:NWL), with a stake worth $580.4 million reported as of the end of September. Trailing Icahn Capital LP was Pzena Investment Management, which amassed a stake valued at $340.8 million. Arrowstreet Capital, Citadel Investment Group, and 13D Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Proxima Capital Management allocated the biggest weight to Newell Brands Inc. (NASDAQ:NWL), around 5.43% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, designating 3.78 percent of its 13F equity portfolio to NWL.

Judging by the fact that Newell Brands Inc. (NASDAQ:NWL) has experienced bearish sentiment from the smart money, it’s safe to say that there lies a certain “tier” of hedge funds that elected to cut their positions entirely in the first quarter. At the top of the heap, Mark Rachesky’s MHR Fund Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, worth about $16.3 million in stock. Charles Lemonides’s fund, Valueworks LLC, also dropped its stock, about $6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 7 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Newell Brands Inc. (NASDAQ:NWL) but similarly valued. These stocks are Bright Horizons Family Solutions Inc (NYSE:BFAM), Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM), Amedisys Inc (NASDAQ:AMED), and The Stars Group Inc. (NASDAQ:TSG). This group of stocks’ market valuations resemble NWL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BFAM 27 262204 -7
SQM 10 53846 -3
AMED 20 244124 -2
TSG 34 1097115 -11
Average 22.75 414322 -5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $1005 million in NWL’s case. The Stars Group Inc. (NASDAQ:TSG) is the most popular stock in this table. On the other hand Sociedad Quimica y Minera (NYSE:SQM) is the least popular one with only 10 bullish hedge fund positions. Newell Brands Inc. (NASDAQ:NWL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on NWL, though not to the same extent, as the stock returned 21.5% during the second quarter and outperformed the market as well.

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