Hedge Funds Are Done Buying Revlon Inc (REV)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Revlon Inc (NYSE:REV) based on those filings.

Is Revlon Inc (NYSE:REV) ready to rally soon? Prominent investors are becoming less confident. The number of bullish hedge fund positions dropped by 2 recently. Our calculations also showed that REV 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). REV was in 36 hedge funds’ portfolios at the end of March. There were 38 hedge funds in our database with REV 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 87% since March 2017 and outperformed the S&P 500 ETFs by more than 51 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.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the recent hedge fund action regarding Revlon Inc (NYSE:REV).

How have hedgies been trading Revlon Inc (NYSE:REV)?

Heading into the second quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in REV a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is REV A Good Stock To Buy?

Among these funds, SCW Capital Management held the most valuable stake in Revlon Inc (NYSE:REV), which was worth $31.7 million at the end of the third quarter. On the second spot was Sunriver Management which amassed $30.4 million worth of shares. Pzena Investment Management, Citadel Investment Group, and Royce & Associates 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 SCW Capital Management allocated the biggest weight to Revlon Inc (NYSE:REV), around 28.37% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, setting aside 19.1 percent of its 13F equity portfolio to REV.

Due to the fact that Revlon Inc (NYSE:REV) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds who sold off their full holdings heading into Q4. It’s worth mentioning that Kamran Moghtaderi’s Eversept Partners dropped the largest investment of all the hedgies followed by Insider Monkey, worth close to $5.4 million in stock. Lawrence Hawkins’s fund, Prosight Capital, also dropped its stock, about $2.6 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Revlon Inc (NYSE:REV) but similarly valued. These stocks are Kforce Inc. (NASDAQ:KFRC), Petmed Express Inc (NASDAQ:PETS), Redwood Trust, Inc. (NYSE:RWT), and Greenbrier Companies Inc (NYSE:GBX). This group of stocks’ market valuations are similar to REV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KFRC 15 46137 -7
PETS 18 112993 -1
RWT 22 66955 9
GBX 8 13726 -4
Average 15.75 59953 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $178 million in REV’s case. Redwood Trust, Inc. (NYSE:RWT) is the most popular stock in this table. On the other hand Greenbrier Companies Inc (NYSE:GBX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Revlon Inc (NYSE:REV) 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately REV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on REV were disappointed as the stock returned -6.3% during the second quarter (through the end of May) 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.