Hedge Funds Aren’t Crazy About L Brands Inc (LB) Anymore

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards L Brands Inc (NYSE:LB).

Is L Brands Inc (NYSE:LB) a buy right now? Investors who are in the know are selling. The number of long hedge fund bets fell by 7 in recent months. Our calculations also showed that LB 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 51 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities 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. Keeping this in mind let’s take a gander at the recent hedge fund action encompassing L Brands Inc (NYSE:LB).

What have hedge funds been doing with L Brands Inc (NYSE:LB)?

At Q1’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. By comparison, 32 hedge funds held shares or bullish call options in LB a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Lone Pine Capital has the number one position in L Brands Inc (NYSE:LB), worth close to $303.6 million, corresponding to 1.8% of its total 13F portfolio. On Lone Pine Capital’s heels is Gabriel Plotkin of Melvin Capital Management, with a $150.3 million position; 1.2% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism consist of Robert Pitts’s Steadfast Capital Management, John Armitage’s Egerton Capital Limited and Gabriel Plotkin’s Melvin Capital Management. In terms of the portfolio weights assigned to each position Barington Capital Group allocated the biggest weight to L Brands Inc (NYSE:LB), around 14.1% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, dishing out 6.87 percent of its 13F equity portfolio to LB.

Seeing as L Brands Inc (NYSE:LB) has faced bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few money managers that slashed their full holdings heading into Q4. Intriguingly, Ricky Sandler’s Eminence Capital cut the largest investment of the 750 funds tracked by Insider Monkey, comprising about $105.6 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $88.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 7 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as L Brands Inc (NYSE:LB) but similarly valued. We will take a look at Pure Storage, Inc. (NYSE:PSTG), FirstService Corporation (NASDAQ:FSV), Silgan Holdings Inc. (NASDAQ:SLGN), and The Middleby Corporation (NASDAQ:MIDD). This group of stocks’ market valuations are closest to LB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSTG 25 320708 -4
FSV 12 137025 0
SLGN 16 176587 -1
MIDD 26 85040 -9
Average 19.75 179840 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $920 million in LB’s case. The Middleby Corporation (NASDAQ:MIDD) is the most popular stock in this table. On the other hand FirstService Corporation (NASDAQ:FSV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks L Brands Inc (NYSE:LB) 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on LB as the stock returned 40.1% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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