Is American Eagle Outfitters Inc. (AEO) A Good Stock To Buy?

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 American Eagle Outfitters Inc. (NYSE:AEO) based on those filings.

American Eagle Outfitters Inc. (NYSE:AEO) was in 26 hedge funds’ portfolios at the end of March. AEO investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. There were 24 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 (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 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’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.

Kerr Neilson of Platinum Asset Management

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 these. 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 let’s analyze the fresh hedge fund action regarding American Eagle Outfitters Inc. (NYSE:AEO).

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

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the fourth quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in AEO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

The largest stake in American Eagle Outfitters Inc. (NYSE:AEO) was held by Platinum Asset Management, which reported holding $28 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $21.1 million position. Other investors bullish on the company included AQR Capital Management, Arrowstreet Capital, and Royce & Associates. In terms of the portfolio weights assigned to each position DC Capital Partners allocated the biggest weight to American Eagle Outfitters Inc. (NYSE:AEO), around 26.49% of its 13F portfolio. Prentice Capital Management is also relatively very bullish on the stock, setting aside 4.71 percent of its 13F equity portfolio to AEO.

Consequently, key money managers were leading the bulls’ herd. Prentice Capital Management, managed by Michael Zimmerman, established the most outsized position in American Eagle Outfitters Inc. (NYSE:AEO). Prentice Capital Management had $9.9 million invested in the company at the end of the quarter. Andrew Kurita’s Kettle Hill Capital Management also initiated a $5.1 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors, and C. Jonathan Gattman’s Cloverdale Capital Management.

Let’s now take a look at 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 Corecivic Inc. (NYSE:CXW), Main Street Capital Corporation (NYSE:MAIN), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), and Matson Inc. (NYSE:MATX). This group of stocks’ market values are similar to AEO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CXW 18 109733 -7
MAIN 7 14571 -2
OMAB 4 29890 -2
MATX 3 6188 -7
Average 8 40096 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $133 million in AEO’s case. Corecivic Inc. (NYSE:CXW) is the most popular stock in this table. On the other hand Matson Inc. (NYSE:MATX) is the least popular one with only 3 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 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 AEO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AEO were disappointed as the stock returned 17.2% 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.