After surging by over 10% in the final half-an-hour of yesterday’s trading session, Avon Products, Inc. (NYSE:AVP) has put another 10% gain on the board so far this morning. The strong push for the stock is the result of Avon announcing that is in engaged in talks with Stephen Feinberg’s Cerberus Capital Management to sell the company’s North American division to the private equity firm, which would provide Avon with some much-needed cash. While investors have largely hailed the move, as evidenced by its soaring stock, not all shareholders of the company like the idea. Barrington Capital Group, which collectively owns about 3% of Avon’s shares, thinks the direct seller of beauty products should focus instead on restructuring its operations and reinvigorating its image, rather than turning to band-aid solutions that will only prolong the seemingly-inevitable at this point.
Avon’s sales have been cut in half since 2007 and its stock has lost 90% of its value since August 2008, including a 53% slide this year alone. The company has more long-term debt than its entire market capitalization at present, even after the gains of the last two days, which perhaps starkly illustrates Barrington Capital Group’s contention that Avon selling off pieces of itself is folly. Despite the immense challenges for Avon, the firm still has many believers among the top investors tracked by Insider Monkey, who we look to for clues as to the likely future performance of the firm.
Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by over 53 percentage points (read more details here).
Avon Products, Inc. (NYSE:AVP) investors should be pleased to know that there was an increase in hedge fund sentiment for the stock in the third quarter, which we’ll get to on the next page.=. At the end of this article we will also compare Avon Products to other stocks including Flow International Corporation (NASDAQ:FLOW), Ophthotech Corp (NASDAQ:OPHT), and Mpg Office Trust Inc (NYSE:MPG) to get a better sense of its popularity compared to similar-sized companies.
Keeping this in mind, let’s go over the recent trading activity on Avon Products, Inc. (NYSE:AVP).
What have hedge funds been doing with Avon Products, Inc. (NYSE:AVP)?
At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a 15% quarter-over-quarter increase. According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Yacktman Asset Management, managed by Donald Yacktman, holds the most valuable position in Avon Products, Inc. (NYSE:AVP) as of the end of September. Yacktman Asset Management has a $123.8 million position in the stock. Sitting in second is Gotham Asset Management, managed by Joel Greenblatt, which holds a $34.2 million position; Gotham hiked its stake in Avon by 44% during the third quarter. Other investors with similar optimism encompass Wallace Weitz’s Wallace R. Weitz & Co., Israel Englander’s Millennium Management, and North Run Capital.
As there has been an increase in the stock’s ownership among the firms that we track, key hedge funds have made big moves. North Run Capital, managed by Thomas Ellis and Todd Hammer, assembled the largest position in Avon Products, Inc. (NYSE:AVP), an $11.5 million investment in the company. Glenn Russell Dubin’s Highbridge Capital Management also made a $6.7 million investment in the stock during the quarter. Other funds with brand new Avon positions are David Costen Haley’s HBK Investments, and Nick Niell’s Arrowgrass Capital Partners.
Let’s now review hedge fund activity in other stocks similar to Avon Products, Inc. (NYSE:AVP). We will take a look at Flow International Corporation (NASDAQ:FLOW), Ophthotech Corp (NASDAQ:OPHT), Mpg Office Trust Inc (NYSE:MPG), and Gamco Investors Inc. (NYSE:GBL). This group of stocks’ market values are closest to Avon’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 16 hedge funds with long positions and the average amount invested in these stocks by those funds was $143 million. That figure was $246 million in Avon’s case. Flow International Corporation (NASDAQ:FLOW) is the most popular stock in this table with 24 investors, while Mpg Office Trust Inc (NYSE:MPG) is the least popular one with only 11. Compared to these stocks Avon Products, Inc. (NYSE:AVP) is quite a bit more popular among the hedge funds in our database and has more money invested in it than all but one of the other stocks. Considering that hedge funds have continued to support and believe in this brand despite its woes, we believe that there is yet hope for a turnaround for Avon. It will have to wisely make use of its new cash to affect that turnaround however, as it is running out of time.