Hedge Funds Have Never Been Less Bullish On American Eagle Outfitters Inc. (AEO)

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about American Eagle Outfitters Inc. (NYSE:AEO).

Is American Eagle Outfitters Inc. (NYSE:AEO) a good investment right now? Prominent investors are in a pessimistic mood. The number of long hedge fund positions were trimmed by 4 lately. Our calculations also showed that AEO isn’t among the 30 most popular stocks among hedge funds (see the video below). AEO was in 21 hedge funds’ portfolios at the end of June. There were 25 hedge funds in our database with AEO holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the fresh hedge fund action surrounding American Eagle Outfitters Inc. (NYSE:AEO).

Hedge fund activity in American Eagle Outfitters Inc. (NYSE:AEO)

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in AEO over the last 16 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).


More specifically, Renaissance Technologies was the largest shareholder of American Eagle Outfitters Inc. (NYSE:AEO), with a stake worth $75.4 million reported as of the end of March. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $69 million. Arrowstreet Capital, Platinum Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because American Eagle Outfitters Inc. (NYSE:AEO) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedge funds who sold off their positions entirely last quarter. At the top of the heap, Louis Bacon’s Moore Global Investments cut the largest position of all the hedgies monitored by Insider Monkey, totaling close to $13.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $13.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to American Eagle Outfitters Inc. (NYSE:AEO). These stocks are AllianceBernstein Holding LP (NYSE:AB), Glaukos Corporation (NYSE:GKOS), AU Optronics Corp. (NYSE:AUO), and SiteOne Landscape Supply, Inc. (NYSE:SITE). This group of stocks’ market valuations match AEO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AB 10 25072 2
GKOS 15 65405 0
AUO 7 60738 -1
SITE 12 39922 0
Average 11 47784 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $349 million in AEO’s case. Glaukos Corporation (NYSE:GKOS) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks American Eagle Outfitters Inc. (NYSE:AEO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AEO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AEO were disappointed as the stock returned -3.2% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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