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Did Hedge Funds Make The Right Call On Urban Outfitters, Inc. (URBN) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtUrban Outfitters, Inc. (NASDAQ:URBN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Urban Outfitters, Inc. (NASDAQ:URBN) a buy right now? Prominent investors were taking a pessimistic view. The number of long hedge fund bets retreated by 11 lately. Our calculations also showed that URBN 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). URBN was in 23 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with URBN holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset 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. With all of this in mind we’re going to take a look at the key hedge fund action encompassing Urban Outfitters, Inc. (NASDAQ:URBN).

How are hedge funds trading Urban Outfitters, Inc. (NASDAQ:URBN)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in URBN a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Urban Outfitters, Inc. (NASDAQ:URBN), which was worth $33.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $16.6 million worth of shares. Point72 Asset Management, 3G Sahana Capital Management, and Arrowstreet Capital 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 Cloverdale Capital Management allocated the biggest weight to Urban Outfitters, Inc. (NASDAQ:URBN), around 1.54% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, setting aside 1.47 percent of its 13F equity portfolio to URBN.

Seeing as Urban Outfitters, Inc. (NASDAQ:URBN) has witnessed falling interest from hedge fund managers, we can see that there exists a select few hedge funds that slashed their full holdings heading into Q4. Interestingly, Brandon Haley’s Holocene Advisors cut the largest position of all the hedgies watched by Insider Monkey, comprising close to $14.4 million in stock, and Mark Coe’s Intrinsic Edge Capital was right behind this move, as the fund said goodbye to about $8.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 11 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Urban Outfitters, Inc. (NASDAQ:URBN) but similarly valued. These stocks are SSR Mining Inc. (NASDAQ:SSRM), Fanhua Inc. (NASDAQ:FANH), Palomar Holdings, Inc. (NASDAQ:PLMR), and Vector Group Ltd (NYSE:VGR). This group of stocks’ market values match URBN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SSRM 22 152203 6
FANH 5 4287 -2
PLMR 7 47406 -1
VGR 16 123143 -1
Average 12.5 81760 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $99 million in URBN’s case. SSR Mining Inc. (NASDAQ:SSRM) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Urban Outfitters, Inc. (NASDAQ:URBN) is more popular among hedge funds. 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 and still beat the market by 15.5 percentage points. Unfortunately URBN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on URBN were disappointed as the stock returned 6.9% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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