While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Revlon Inc (NYSE:REV).
Is REV a good stock to buy? Revlon Inc (NYSE:REV) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. Revlon Inc (NYSE:REV) was in 32 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 38. Our calculations also showed that REV 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.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 under the radar cannabis 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. With all of this in mind we’re going to analyze the key hedge fund action encompassing Revlon Inc (NYSE:REV).
Do Hedge Funds Think REV Is A Good Stock To Buy Now?
At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in REV 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.
Of the funds tracked by Insider Monkey, SCW Capital Management, managed by John R. Wagner, holds the largest position in Revlon Inc (NYSE:REV). SCW Capital Management has a $41.1 million position in the stock, comprising 23.8% of its 13F portfolio. Sitting at the No. 2 spot is Pzena Investment Management, led by Richard S. Pzena, holding a $33.7 million position; 0.2% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions consist of Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Will Cook’s Sunriver Management and Thomas E. Claugus’s GMT Capital. In terms of the portfolio weights assigned to each position SCW Capital Management allocated the biggest weight to Revlon Inc (NYSE:REV), around 23.78% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, designating 20.1 percent of its 13F equity portfolio to REV.
Due to the fact that Revlon Inc (NYSE:REV) has faced falling interest from hedge fund managers, it’s safe to say that there were a few hedgies that slashed their full holdings in the third quarter. At the top of the heap, Michael Castor’s Sio Capital cut the largest investment of all the hedgies tracked by Insider Monkey, valued at close to $8.5 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $3.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Revlon Inc (NYSE:REV) but similarly valued. These stocks are LendingClub Corp (NYSE:LC), The Hackett Group, Inc. (NASDAQ:HCKT), Alerus Financial Corporation (NASDAQ:ALRS), Casa Systems, Inc. (NASDAQ:CASA), One Liberty Properties, Inc. (NYSE:OLP), Daily Journal Corporation (NASDAQ:DJCO), and Cutera, Inc. (NASDAQ:CUTR). This group of stocks’ market values resemble REV’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 9.7 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $254 million in REV’s case. Cutera, Inc. (NASDAQ:CUTR) is the most popular stock in this table. On the other hand Alerus Financial Corporation (NASDAQ:ALRS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Revlon Inc (NYSE:REV) is more popular among hedge funds. Our overall hedge fund sentiment score for REV is 78.3. 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 returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on REV as the stock returned 91.3% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.