Is The Gap Inc. (GPS) A Good Stock To Buy?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 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 The Gap Inc. (NYSE:GPS).

Is GPS a good stock to buy now? The Gap Inc. (NYSE:GPS) has experienced a decrease in hedge fund sentiment recently. The Gap Inc. (NYSE:GPS) was in 28 hedge funds’ portfolios at the end of September. The all time high for this statistic is 43. Our calculations also showed that GPS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s analyze the recent hedge fund action regarding The Gap Inc. (NYSE:GPS).

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

At third quarter’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -35% from the second quarter of 2021. On the other hand, there were a total of 35 hedge funds with a bullish position in GPS a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in The Gap Inc. (NYSE:GPS), which was worth $205.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $31.7 million worth of shares. Pzena Investment Management, Citadel Investment Group, and Clearline Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Clearline Capital allocated the biggest weight to The Gap Inc. (NYSE:GPS), around 1.6% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, designating 1.59 percent of its 13F equity portfolio to GPS.

Seeing as The Gap Inc. (NYSE:GPS) has faced a decline in interest from the smart money, we can see that there were a few fund managers that slashed their positions entirely heading into Q4. It’s worth mentioning that Alexander Mitchell’s Scopus Asset Management said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $134.6 million in call options, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund said goodbye to about $33.7 million worth. These moves are interesting, as total hedge fund interest fell by 15 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to The Gap Inc. (NYSE:GPS). These stocks are CRISPR Therapeutics AG (NASDAQ:CRSP), Jabil Inc. (NYSE:JBL), Vertiv Holdings Co (NYSE:VRT), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Hyatt Hotels Corporation (NYSE:H), IPG Photonics Corporation (NASDAQ:IPGP), and DXC Technology Company (NYSE:DXC). All of these stocks’ market caps are closest to GPS’s market cap.

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As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $371 million in GPS’s case. CRISPR Therapeutics AG (NASDAQ:CRSP) is the most popular stock in this table. On the other hand Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is the least popular one with only 21 bullish hedge fund positions. The Gap Inc. (NYSE:GPS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GPS is 25.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately GPS wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); GPS investors were disappointed as the stock returned -23.9% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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