Should You Buy Estee Lauder Companies Inc (EL)?

After a lengthy stretch of outperformance, small-cap stocks suffered from July 2015 through June 2016, as heightened global economic fears led investors to flee to the safe havens of large-cap stocks and other instruments. Those stocks outperformed small-caps by about 10 percentage points during that time, with small-cap healthcare stocks being particularly hard hit. However, the tide has since turned in a big way, as evidenced by small-caps toppling their large-cap peers by 5 percentage points in the third quarter, and by another 5 percentage points in the first seven weeks of the fourth quarter. In this article, we’ll analyze how this shift affected hedge funds’ Q3 trading of Estee Lauder Companies Inc (NYSE:EL) and see how the stock is affected by the recent hedge fund activity.

Estee Lauder Companies Inc (NYSE:EL) was in 29 hedge funds’ portfolios at the end of the third quarter of 2016. EL investors should pay attention to an increase in hedge fund sentiment lately. There were 25 hedge funds in our database with EL positions at the end of the previous quarter. At the end of this article we will also compare EL to other stocks including Emerson Electric Co. (NYSE:EMR), Charles Schwab Corp (NYSE:SCHW), and Korea Electric Power Corporation (ADR) (NYSE:KEP) to get a better sense of its popularity.

Follow Estee Lauder Companies Inc (NYSE:EL)

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year, involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

With all of this in mind, we’re going to view the key action regarding Estee Lauder Companies Inc (NYSE:EL).

Hedge fund activity in Estee Lauder Companies Inc (NYSE:EL)

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 16% from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Paul Marshall and Ian Wace’s Marshall Wace LLP has the biggest position in Estee Lauder Companies Inc (NYSE:EL), worth close to $171.8 million and corresponding to 1.2% of its total 13F portfolio. The second largest stake is held by Jim Simons’ Renaissance Technologies holding a $124 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers that hold long positions include Cliff Asness’s AQR Capital Management, Alexander Mitchell’s Scopus Asset Management and Ken Griffin’s Citadel Investment Group.

As industrywide interest jumped, specific money managers have been driving this bullishness. Scopus Asset Management, run by Alexander Mitchell, established the most valuable position in Estee Lauder Companies Inc (NYSE:EL). The fund reportedly had $54 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $27.8 million investment in the stock during the quarter. The following funds were also among the new EL investors: Anand Parekh’s Alyeska Investment Group, Ken Griffin’s Citadel Investment Group, and Matthew Tewksbury’s Stevens Capital Management.

Let’s now review hedge fund activity in other stocks similar to Estee Lauder Companies Inc (NYSE:EL). These stocks are Emerson Electric Co. (NYSE:EMR), Charles Schwab Corp (NYSE:SCHW), Korea Electric Power Corporation (ADR) (NYSE:KEP), and Constellation Brands, Inc. (NYSE:STZ). All of these stocks’ market caps are similar to EL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EMR 28 411399 -4
SCHW 44 2680313 6
KEP 14 125755 1
STZ 67 6679779 -2

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $2.47 billion. That figure was $741 million in EL’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (ADR) (NYSE:KEP) is the least popular one with only 14 bullish hedge fund positions. Estee Lauder Companies Inc (NYSE:EL) 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 STZ might be a better candidate to consider a long position.

Disclosure: none.