Hedge Funds Are Selling Lands’ End, Inc. (LE)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Lands’ End, Inc. (NASDAQ:LE).

Lands’ End, Inc. (NASDAQ:LE) was in 8 hedge funds’ portfolios at the end of the first quarter of 2020. LE has seen a decrease in enthusiasm from smart money recently. There were 10 hedge funds in our database with LE holdings at the end of the previous quarter. Our calculations also showed that LE 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).

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

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 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 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the fresh hedge fund action surrounding Lands’ End, Inc. (NASDAQ:LE).

Hedge fund activity in Lands’ End, Inc. (NASDAQ:LE)

At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in LE a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, ESL Investments was the largest shareholder of Lands’ End, Inc. (NASDAQ:LE), with a stake worth $24 million reported as of the end of September. Trailing ESL Investments was Arrowstreet Capital, which amassed a stake valued at $1.5 million. Renaissance Technologies, GAMCO Investors, and PEAK6 Capital 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 ESL Investments allocated the biggest weight to Lands’ End, Inc. (NASDAQ:LE), around 25.96% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to LE.

Because Lands’ End, Inc. (NASDAQ:LE) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of funds who sold off their positions entirely by the end of the first quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at close to $3.5 million in stock. Philippe Laffont’s fund, Coatue Management, also said goodbye to its stock, about $1.5 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Lands’ End, Inc. (NASDAQ:LE) but similarly valued. We will take a look at NantHealth, Inc. (NASDAQ:NH), Allegro Merger Corp. (NASDAQ:ALGR), Green Plains Inc. (NASDAQ:GPRE), and PDL Community Bancorp (NASDAQ:PDLB). This group of stocks’ market valuations are closest to LE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $28 million in LE’s case. Green Plains Inc. (NASDAQ:GPRE) is the most popular stock in this table. On the other hand PDL Community Bancorp (NASDAQ:PDLB) is the least popular one with only 2 bullish hedge fund positions. Lands’ End, Inc. (NASDAQ:LE) 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 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on LE as the stock returned 64.8% in Q2 (through June 17th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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