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Is The Children’s Place Inc. (PLCE) Going To Burn These Hedge Funds ?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

The Children’s Place Inc. (NASDAQ:PLCE) has seen an increase in support from the world’s most elite money managers recently. Our calculations also showed that PLCE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the new hedge fund action encompassing The Children’s Place Inc. (NASDAQ:PLCE).

How are hedge funds trading The Children’s Place Inc. (NASDAQ:PLCE)?

Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PLCE over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Greenvale Capital, managed by Bruce Emery, holds the number one position in The Children’s Place Inc. (NASDAQ:PLCE). Greenvale Capital has a $53.9 million position in the stock, comprising 16.1% of its 13F portfolio. Coming in second is Royce & Associates, led by Chuck Royce, holding a $46.1 million position; 0.4% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish comprise Israel Englander’s Millennium Management, Alexander Mitchell’s Scopus Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to The Children’s Place Inc. (NASDAQ:PLCE), around 16.13% of its 13F portfolio. Buckingham Capital Management is also relatively very bullish on the stock, earmarking 1.49 percent of its 13F equity portfolio to PLCE.

Consequently, specific money managers have been driving this bullishness. D E Shaw, managed by David E. Shaw, created the largest position in The Children’s Place Inc. (NASDAQ:PLCE). D E Shaw had $14.3 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $4.3 million investment in the stock during the quarter. The following funds were also among the new PLCE investors: Sander Gerber’s Hudson Bay Capital Management, Philippe Laffont’s Coatue Management, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Children’s Place Inc. (NASDAQ:PLCE) but similarly valued. We will take a look at GMS Inc. (NYSE:GMS), OneSmart International Education Group Limited (NYSE:ONE), United Fire Group, Inc. (NASDAQ:UFCS), and Vicor Corp (NASDAQ:VICR). This group of stocks’ market caps match PLCE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GMS 23 130082 3
ONE 8 54613 1
UFCS 8 13556 -2
VICR 11 15736 -2
Average 12.5 53497 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $247 million in PLCE’s case. GMS Inc. (NYSE:GMS) is the most popular stock in this table. On the other hand OneSmart International Education Group Limited (NYSE:ONE) is the least popular one with only 8 bullish hedge fund positions. The Children’s Place Inc. (NASDAQ:PLCE) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PLCE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PLCE were disappointed as the stock returned -6.1% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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