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Should You Avoid The Estee Lauder Companies Inc (EL)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of The Estee Lauder Companies Inc (NYSE:EL).

The Estee Lauder Companies Inc (NYSE:EL) was in 44 hedge funds’ portfolios at the end of the first quarter of 2020. EL investors should pay attention to a decrease in enthusiasm from smart money of late. There were 50 hedge funds in our database with EL holdings at the end of the previous quarter. Our calculations also showed that EL isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the latest hedge fund action encompassing The Estee Lauder Companies Inc (NYSE:EL).

What does smart money think about The Estee Lauder Companies Inc (NYSE:EL)?

At Q1’s end, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in EL a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in The Estee Lauder Companies Inc (NYSE:EL), which was worth $227.8 million at the end of the third quarter. On the second spot was Ako Capital which amassed $185.1 million worth of shares. GQG Partners, Renaissance Technologies, and Melvin Capital Management 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 Bristol Gate Capital Partners allocated the biggest weight to The Estee Lauder Companies Inc (NYSE:EL), around 4.54% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, setting aside 3.9 percent of its 13F equity portfolio to EL.

Since The Estee Lauder Companies Inc (NYSE:EL) has witnessed falling interest from hedge fund managers, logic holds that there lies a certain “tier” of money managers that decided to sell off their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, valued at close to $74 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $24.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Estee Lauder Companies Inc (NYSE:EL) but similarly valued. These stocks are The Southern Company (NYSE:SO), Colgate-Palmolive Company (NYSE:CL), Rio Tinto Group (NYSE:RIO), and Zoetis Inc (NYSE:ZTS). All of these stocks’ market caps match EL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SO 33 810355 3
CL 53 1865405 1
RIO 20 1108363 -1
ZTS 60 1775801 12
Average 41.5 1389981 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $1390 million. That figure was $1074 million in EL’s case. Zoetis Inc (NYSE:ZTS) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 20 bullish hedge fund positions. The Estee Lauder Companies Inc (NYSE:EL) 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 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 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately EL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EL were disappointed as the stock returned 11.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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