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Is Under Armour Inc (UA) A Good Stock To Buy?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Under Armour Inc (NYSE:UA) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Under Armour Inc (NYSE:UA) was in 30 hedge funds’ portfolios at the end of the first quarter of 2019. UA investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 27 hedge funds in our database with UA holdings at the end of the previous quarter. Our calculations also showed that UA isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Let’s view the fresh hedge fund action surrounding Under Armour Inc (NYSE:UA).

What does the smart money think about Under Armour Inc (NYSE:UA)?

Heading into the second quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in UA 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.

UA_jun2019

The largest stake in Under Armour Inc (NYSE:UA) was held by Adage Capital Management, which reported holding $264.1 million worth of stock at the end of March. It was followed by Bares Capital Management with a $191.7 million position. Other investors bullish on the company included Alyeska Investment Group, D E Shaw, and Citadel Investment Group.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. GMT Capital, managed by Thomas E. Claugus, assembled the most outsized position in Under Armour Inc (NYSE:UA). GMT Capital had $11.8 million invested in the company at the end of the quarter. Michael Hintze’s CQS Cayman LP also initiated a $10.7 million position during the quarter. The other funds with brand new UA positions are Steve Cohen’s Point72 Asset Management, Thomas E. Claugus’s GMT Capital, and Jim Simons’s Renaissance Technologies.

Let’s check out hedge fund activity in other stocks similar to Under Armour Inc (NYSE:UA). These stocks are Whirlpool Corporation (NYSE:WHR), Zions Bancorporation, National Association (NASDAQ:ZION), Woori Financial Group Inc. (NYSE:WF), and ON Semiconductor Corporation (NASDAQ:ON). This group of stocks’ market caps are similar to UA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WHR 18 547948 -2
ZION 44 631442 2
WF 1 997 -1
ON 39 660556 10
Average 25.5 460236 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $460 million. That figure was $935 million in UA’s case. Zions Bancorporation (NASDAQ:ZION) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 1 bullish hedge fund positions. Under Armour Inc (NYSE:UA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on UA as the stock returned 8.3% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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