Is EL A Good Stock To Buy Now?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on The Estee Lauder Companies Inc (NYSE:EL).

Is EL a good stock to buy now? Hedge fund interest in The Estee Lauder Companies Inc (NYSE:EL) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that EL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Target Corporation (NYSE:TGT), Zoetis Inc (NYSE:ZTS), and Stryker Corporation (NYSE:SYK) to gather more data points.

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 66 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.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s review the key hedge fund action regarding The Estee Lauder Companies Inc (NYSE:EL).

Do Hedge Funds Think EL Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 48 hedge funds with a bullish position in EL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EL A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Nicolai Tangen’s Ako Capital has the most valuable position in The Estee Lauder Companies Inc (NYSE:EL), worth close to $354.2 million, corresponding to 5.6% of its total 13F portfolio. On Ako Capital’s heels is Cliff Asness of AQR Capital Management, with a $235.1 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Renaissance Technologies, Jack Woodruff’s Candlestick Capital Management and Aaron Cowen’s Suvretta Capital Management. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to The Estee Lauder Companies Inc (NYSE:EL), around 6.33% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, designating 5.56 percent of its 13F equity portfolio to EL.

Judging by the fact that The Estee Lauder Companies Inc (NYSE:EL) has witnessed declining sentiment from hedge fund managers, logic holds that there is a sect of hedge funds that decided to sell off their full holdings in the third quarter. It’s worth mentioning that Gabriel Plotkin’s Melvin Capital Management sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $37.7 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund dumped about $21 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to The Estee Lauder Companies Inc (NYSE:EL). These stocks are Target Corporation (NYSE:TGT), Zoetis Inc (NYSE:ZTS), Stryker Corporation (NYSE:SYK), CVS Health Corporation (NYSE:CVS), Morgan Stanley (NYSE:MS), Canadian National Railway Company (NYSE:CNI), and Rio Tinto Group (NYSE:RIO). This group of stocks’ market caps are closest to EL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGT 57 3952738 3
ZTS 58 2248300 0
SYK 48 1718729 -2
CVS 61 1171666 -4
MS 70 4166963 9
CNI 26 2224542 -2
RIO 23 1276002 3
Average 49 2394134 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $2394 million. That figure was $1519 million in EL’s case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 23 bullish hedge fund positions. The Estee Lauder Companies Inc (NYSE:EL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EL is 57.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on EL as the stock returned 14.1% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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