How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Lululemon Athletica inc. (NASDAQ:LULU).
Is LULU a good stock to buy now? Lululemon Athletica inc. (NASDAQ:LULU) investors should be aware of an increase in hedge fund interest recently. Lululemon Athletica inc. (NASDAQ:LULU) was in 50 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 52. Our calculations also showed that LULU 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Now we’re going to take a look at the new hedge fund action regarding Lululemon Athletica inc. (NASDAQ:LULU).
What does smart money think about Lululemon Athletica inc. (NASDAQ:LULU)?
Heading into the fourth quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LULU over the last 21 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Lululemon Athletica inc. (NASDAQ:LULU) was held by Citadel Investment Group, which reported holding $264.4 million worth of stock at the end of September. It was followed by D E Shaw with a $237.7 million position. Other investors bullish on the company included Samlyn Capital, Balyasny Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position Kettle Hill Capital Management allocated the biggest weight to Lululemon Athletica inc. (NASDAQ:LULU), around 3.83% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, earmarking 2.82 percent of its 13F equity portfolio to LULU.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Lululemon Athletica inc. (NASDAQ:LULU) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the largest position in Lululemon Athletica inc. (NASDAQ:LULU). Balyasny Asset Management had $105.6 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $90 million position during the quarter. The other funds with brand new LULU positions are James Parsons’s Junto Capital Management, Daniel Patrick Gibson’s Sylebra Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now take a look at hedge fund activity in other stocks similar to Lululemon Athletica inc. (NASDAQ:LULU). These stocks are CNOOC Limited (NYSE:CEO), Koninklijke Philips NV (NYSE:PHG), Veeva Systems Inc (NYSE:VEEV), General Motors Company (NYSE:GM), Monster Beverage Corp (NASDAQ:MNST), HCA Healthcare Inc (NYSE:HCA), and Roper Technologies Inc. (NYSE:ROP). This group of stocks’ market values match LULU’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.9 hedge funds with bullish positions and the average amount invested in these stocks was $1706 million. That figure was $1273 million in LULU’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 10 bullish hedge fund positions. Lululemon Athletica inc. (NASDAQ:LULU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LULU is 71.6. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on LULU as the stock returned 13.1% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.