Lookback: RF Capital’s 2019 Foot Locker (FL) Thesis

If you are looking for the best ideas for your portfolio you may want to consider some of RF Capital’s top stock picks. RF Capital, an investment management firm, is bullish on Foot Locker Inc. (NYSE:FL) stock. In its Q3 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Foot Locker Inc. (NYSE:FL) stock. Foot Locker Inc. (NYSE:FL) is a shoe stores company.

In October 2019, RF Capital had released its Q3 2019 investor letter. The investment firm said that Foot Locker Inc. (NYSE:FL) was one of the top 5 holdings in Q3 2019. The stock has posted a return of -6.5% in the trailing one year period, underperforming the S&P 500 Index which returned 15.1% in the same period. This suggests that the investment firm was wrong in its decision.

RF Capital fund posted a return of -6.98% in the third quarter of 2019, underperforming the S&P 500 Index which returned 1.87% in the same quarter. Let’s take a look at comments made by RF Capital about Foot Locker Inc. (NYSE:FL) in the Q3 2019 investor letter.

“Foot Locker (FL) – Foot Locker continues to be a strong business that generates free cash flow and high returns on capital. In the last twelve months, FL has generated a pre-tax return on capital of 40.5%. Furthermore, the balance sheet remains solid with only long-term debt of $123 million versus $2.5 billion of equity. Year-to-date sales and comparable store sales are also up slightly compared to last year. Management guides an EPS percentage increase of high singledigits for 2019.

The stock is down from the 52-week high of $68 per share because FL’s Q2 earnings missed the Street’s consensus. Furthermore, analysts have been slashing price targets because they believe the company’s guidance for the year is too optimistic. Also, Nike (a key Foot Locker supplier) missed the Street’s estimates, which is a rarity. While retail and malls generally continue to struggle, Class A malls are doing well. There is steady foot traffic, few vacancies, and rents continue to go up.

Our average cost was $29.62 per share. Although we should have trimmed our position significantly when the stock reached $60+ per share, we will continue to hold the stock and monitor FL’s progress going forward into the holiday season.”

In August, we published an article revealing RF Capital’s bullish investment thesis on Foot Locker Inc. (NYSE:FL) stock in its Q2 2020 investor letter. This suggests that the investment firm has been bullish for a long time on Foot Locker Inc. (NYSE:FL).

In Q2 2020, the number of bullish hedge fund positions on Foot Locker Inc. (NYSE:FL) stock increased by about 38% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Foot Locker’s growth potential. Our calculations showed that Foot Locker Inc. (NYSE:FL) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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