Here’s What Hedge Funds Think About American Eagle Outfitters Inc. (AEO)

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like American Eagle Outfitters Inc. (NYSE:AEO).

American Eagle Outfitters Inc. (NYSE:AEO) investors should pay attention to an increase in enthusiasm from smart money of late. AEO was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 26 hedge funds in our database with AEO holdings at the end of the previous quarter. Our calculations also showed that aeo isn’t among the 30 most popular stocks among hedge funds.

To the average investor there are tons of metrics market participants employ to assess stocks. Some of the less known metrics are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the best money managers can beat the broader indices by a very impressive margin (see the details here).

Chuck Royce

We’re going to take a look at the key hedge fund action encompassing American Eagle Outfitters Inc. (NYSE:AEO).

How are hedge funds trading American Eagle Outfitters Inc. (NYSE:AEO)?

Heading into the first quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in AEO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds With AEO Positions

Among these funds, AQR Capital Management held the most valuable stake in American Eagle Outfitters Inc. (NYSE:AEO), which was worth $131.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $39.3 million worth of shares. Moreover, Renaissance Technologies, Rima Senvest Management, and Royce & Associates were also bullish on American Eagle Outfitters Inc. (NYSE:AEO), allocating a large percentage of their portfolios to this stock.

Now, specific money managers have jumped into American Eagle Outfitters Inc. (NYSE:AEO) headfirst. D E Shaw, managed by D. E. Shaw, initiated the biggest position in American Eagle Outfitters Inc. (NYSE:AEO). D E Shaw had $15.7 million invested in the company at the end of the quarter. Kerr Neilson’s Platinum Asset Management also made a $4.7 million investment in the stock during the quarter. The following funds were also among the new AEO investors: Louis Navellier’s Navellier & Associates, Charles Davidson and Joseph Jacobs’s Wexford Capital, and Steve Cohen’s Point72 Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as American Eagle Outfitters Inc. (NYSE:AEO) but similarly valued. These stocks are Nu Skin Enterprises, Inc. (NYSE:NUS), Wright Medical Group N.V. (NASDAQ:WMGI), Silicon Laboratories Inc. (NASDAQ:SLAB), and The Scotts Miracle-Gro Company (NYSE:SMG). This group of stocks’ market values are closest to AEO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NUS 24 228123 6
WMGI 33 822338 -2
SLAB 17 58266 3
SMG 20 186663 -3
Average 23.5 323848 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $401 million in AEO’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Silicon Laboratories Inc. (NASDAQ:SLAB) is the least popular one with only 17 bullish hedge fund positions. American Eagle Outfitters Inc. (NYSE:AEO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AEO wasn’t nearly as popular as these 15 stock and hedge funds that were betting on AEO were disappointed as the stock returned 15.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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