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Should You Buy Coty Inc (COTY)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track more than 700 prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ recent losses in Facebook. Let’s take a closer look at what the funds we track think about Coty Inc (NYSE:COTY) in this article.

Is Coty Inc (NYSE:COTY) a healthy stock for your portfolio? Investors who are in the know are becoming hopeful. The number of long hedge fund bets improved by 10 in recent months. Our calculations also showed that COTY 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

YORK CAPITAL MANAGEMENT

We’re going to view the fresh hedge fund action encompassing Coty Inc (NYSE:COTY).

What have hedge funds been doing with Coty Inc (NYSE:COTY)?

At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 71% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in COTY heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

COTY_dec2018

The largest stake in Coty Inc (NYSE:COTY) was held by MSDC Management, which reported holding $73.3 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $68.1 million position. Other investors bullish on the company included York Capital Management, Citadel Investment Group, and DSAM Partners.

As aggregate interest increased, key money managers were breaking ground themselves. DSAM Partners, managed by Guy Shahar, established the most valuable position in Coty Inc (NYSE:COTY). DSAM Partners had $12.6 million invested in the company at the end of the quarter. George Soros’s Soros Fund Management also made a $10.7 million investment in the stock during the quarter. The following funds were also among the new COTY investors: Steve Cohen’s Point72 Asset Management, Isaac Corre’s Governors Lane, and Israel Englander’s Millennium Management.

Let’s also examine hedge fund activity in other stocks similar to Coty Inc (NYSE:COTY). We will take a look at Invesco Ltd. (NYSE:IVZ), Huazhu Group Limited (NASDAQ:HTHT), Amdocs Limited (NASDAQ:DOX), and Bio-Rad Laboratories, Inc. (NYSE:BIO). All of these stocks’ market caps are closest to COTY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IVZ 27 283714 8
HTHT 14 41162 -1
DOX 21 643420 0
BIO 38 811052 2
Average 25 444837 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $286 million in COTY’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Huazhu Group Limited (NASDAQ:HTHT) is the least popular one with only 14 bullish hedge fund positions. Coty Inc (NYSE:COTY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BIO might be a better candidate to consider a long position.

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

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