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Were Hedge Funds Right About Souring On Revlon Inc (REV)?

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 first 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 4.5 years and analyze what the smart money thinks of Revlon Inc (NYSE:REV) based on that data and determine whether they were really smart about the stock.

Is Revlon Inc (NYSE:REV) ready to rally soon? Money managers were becoming less hopeful. The number of long hedge fund positions shrunk by 2 in recent months. Our calculations also showed that REV 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). REV was in 36 hedge funds’ portfolios at the end of March. There were 38 hedge funds in our database with REV holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most traders, hedge funds are assumed to be underperforming, old financial vehicles of yesteryear. While there are more than 8000 funds with their doors open today, Our experts look at the bigwigs of this group, about 850 funds. It is estimated that this group of investors preside over the majority of all hedge funds’ total asset base, and by following their best picks, Insider Monkey has identified a number of investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the new hedge fund action regarding Revlon Inc (NYSE:REV).

What does smart money think about Revlon Inc (NYSE:REV)?

At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards REV over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is REV A Good Stock To Buy?

Among these funds, SCW Capital Management held the most valuable stake in Revlon Inc (NYSE:REV), which was worth $31.7 million at the end of the third quarter. On the second spot was Sunriver Management which amassed $30.4 million worth of shares. Pzena Investment Management, Citadel Investment Group, and Royce & Associates 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 SCW Capital Management allocated the biggest weight to Revlon Inc (NYSE:REV), around 28.37% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, dishing out 19.1 percent of its 13F equity portfolio to REV.

Because Revlon Inc (NYSE:REV) has experienced falling interest from hedge fund managers, it’s safe to say that there is a sect of funds who were dropping their positions entirely heading into Q4. Intriguingly, Kamran Moghtaderi’s Eversept Partners cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $5.4 million in stock, and Lawrence Hawkins’s Prosight Capital was right behind this move, as the fund dumped about $2.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Revlon Inc (NYSE:REV) but similarly valued. These stocks are Kforce Inc. (NASDAQ:KFRC), Petmed Express Inc (NASDAQ:PETS), Redwood Trust, Inc. (NYSE:RWT), and Greenbrier Companies Inc (NYSE:GBX). This group of stocks’ market valuations are similar to REV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KFRC 15 46137 -7
PETS 18 112993 -1
RWT 22 66955 9
GBX 8 13726 -4
Average 15.75 59953 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $178 million in REV’s case. Redwood Trust, Inc. (NYSE:RWT) is the most popular stock in this table. On the other hand Greenbrier Companies Inc (NYSE:GBX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Revlon Inc (NYSE:REV) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately REV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on REV were disappointed as the stock returned -9.4% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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