Hedge Fund Favorites vs. The Estee Lauder Companies Inc (EL) In 2019

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

The Estee Lauder Companies Inc (NYSE:EL) has experienced an increase in support from the world’s most elite money managers of late. Our calculations also showed that EL 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).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.


Jim Simons of Renaissance Technologies

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. With all of this in mind let’s analyze the latest hedge fund action encompassing The Estee Lauder Companies Inc (NYSE:EL).

What have hedge funds been doing with The Estee Lauder Companies Inc (NYSE:EL)?

At Q3’s end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the second quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in EL a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is EL A Good Stock To Buy?

The largest stake in The Estee Lauder Companies Inc (NYSE:EL) was held by Renaissance Technologies, which reported holding $555.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $381.7 million position. Other investors bullish on the company included Arrowstreet Capital, Melvin Capital Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Tairen Capital allocated the biggest weight to The Estee Lauder Companies Inc (NYSE:EL), around 5.42% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, earmarking 4.38 percent of its 13F equity portfolio to EL.

Now, specific money managers have jumped into The Estee Lauder Companies Inc (NYSE:EL) headfirst. Millennium Management, managed by Israel Englander, created the most outsized position in The Estee Lauder Companies Inc (NYSE:EL). Millennium Management had $76.7 million invested in the company at the end of the quarter. Larry Chen and Terry Zhang’s Tairen Capital also made a $36.8 million investment in the stock during the quarter. The other funds with brand new EL positions are Jeffrey Talpins’s Element Capital Management, Matthew Tewksbury’s Stevens Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Estee Lauder Companies Inc (NYSE:EL) but similarly valued. These stocks are China Petroleum & Chemical Corp (NYSE:SNP), Caterpillar Inc. (NYSE:CAT), Enbridge Inc (NYSE:ENB), and Morgan Stanley (NYSE:MS). This group of stocks’ market values match EL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNP 13 178003 2
CAT 37 2758115 -8
ENB 18 515524 -2
MS 61 4162955 1
Average 32.25 1903649 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1904 million. That figure was $1851 million in EL’s case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 13 bullish hedge fund positions. The Estee Lauder Companies Inc (NYSE:EL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on EL as the stock returned 59.9% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.