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Do Hedge Funds Love Herbalife Ltd. (HLF)?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Herbalife Ltd. (NYSE:HLF).

Herbalife Ltd. (NYSE:HLF) was in 32 hedge funds’ portfolios at the end of the third quarter of 2015. HLF has seen a decrease in enthusiasm from smart money lately. There were 34 hedge funds in our database with HLF holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL), KAR Auction Services Inc (NYSE:KAR), and Panera Bread Co (NASDAQ:PNRA) to gather more data points.

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In today’s marketplace there are a multitude of signals shareholders can use to value their stock investments. A duo of the less utilized signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top hedge fund managers can outpace the market by a significant amount (see the details here).

With all of this in mind, let’s view the latest action encompassing Herbalife Ltd. (NYSE:HLF).

How have hedgies been trading Herbalife Ltd. (NYSE:HLF)?

At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Carl Icahn’s Icahn Capital LP has the number one position in Herbalife Ltd. (NYSE:HLF), worth close to $926.5 million, comprising 3.3% of its total 13F portfolio. The second largest stake is held by Indus Capital, managed by David Kowitz and Sheldon Kasowitz, which holds a $120.4 million position; the fund has 16.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass William Duhamel’s Route One Investment Company, and Joe Huber’s Huber Capital Management.

Seeing as Herbalife Ltd. (NYSE:HLF) has experienced a declination in interest from the entirety of the hedge funds we track, logic holds that there were a few hedgies that elected to cut their positions entirely heading into Q4. Interestingly, George Soros’ Soros Fund Management said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at about $108.5 million in call options, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund dropped about $55.1 million worth of shares. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Herbalife Ltd. (NYSE:HLF). These stocks are Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL), KAR Auction Services Inc (NYSE:KAR), Panera Bread Co (NASDAQ:PNRA), and Black Knight Financial Services Inc (NYSE:BKFS). All of these stocks’ market caps are closest to HLF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GOL 5 15528 -4
KAR 44 1239158 2
PNRA 23 689406 -4
BKFS 15 41563 -4

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $496 million. That figure was $1.67 billion in HLF’s case. KAR Auction Services Inc (NYSE:KAR) is the most popular stock in this table. On the other hand Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) is the least popular one with only 5 bullish hedge fund positions. Herbalife Ltd. (NYSE:HLF) 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. In this regard KAR might be a better candidate to consider a long position.

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