Should I Avoid Hanesbrands Inc. (HBI)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Hanesbrands Inc. (NYSE:HBI) based on that data and determine whether they were really smart about the stock.

Is Hanesbrands Inc. (NYSE:HBI) the right pick for your portfolio? The best stock pickers were getting less bullish. The number of long hedge fund bets decreased by 5 recently. Hanesbrands Inc. (NYSE:HBI) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 42. Our calculations also showed that HBI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a 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, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to view the latest hedge fund action encompassing Hanesbrands Inc. (NYSE:HBI).

What have hedge funds been doing with Hanesbrands Inc. (NYSE:HBI)?

At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HBI over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Hanesbrands Inc. (NYSE:HBI) was held by Diamond Hill Capital, which reported holding $227.1 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $159.9 million position. Other investors bullish on the company included AQR Capital Management, Candlestick Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Lyrical Asset Management allocated the biggest weight to Hanesbrands Inc. (NYSE:HBI), around 3.15% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, setting aside 2.01 percent of its 13F equity portfolio to HBI.

Seeing as Hanesbrands Inc. (NYSE:HBI) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that slashed their full holdings last quarter. It’s worth mentioning that James A. Mitarotonda’s Barington Capital Group sold off the largest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $3 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dumped about $2.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Hanesbrands Inc. (NYSE:HBI) but similarly valued. We will take a look at Natera Inc (NASDAQ:NTRA), Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), Janus Henderson Group plc (NYSE:JHG), Equity Commonwealth (NYSE:EQC), ICL Group Ltd. (NYSE:ICL), Graphic Packaging Holding Company (NYSE:GPK), and ChemoCentryx Inc (NASDAQ:CCXI). This group of stocks’ market caps resemble HBI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $397 million. That figure was $544 million in HBI’s case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand ICL Group Ltd. (NYSE:ICL) is the least popular one with only 5 bullish hedge fund positions. Hanesbrands Inc. (NYSE:HBI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HBI is 57.3. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on HBI as the stock returned 41.2% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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