Were Hedge Funds Right About Under Armour Inc (UA)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Under Armour Inc (NYSE:UA) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Under Armour Inc (NYSE:UA) investors should be aware of an increase in enthusiasm from smart money of late. UA was in 37 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with UA positions at the end of the previous quarter. Our calculations also showed that UA 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 58 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.

Lone Pine Capital 2015 Q2 Investor Letter

Stephen Mandel of Lone Pine 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we’re going to analyze the fresh hedge fund action encompassing Under Armour Inc (NYSE:UA).

What does smart money think about Under Armour Inc (NYSE:UA)?

At Q1’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UA over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is UA A Good Stock To Buy?

The largest stake in Under Armour Inc (NYSE:UA) was held by Lone Pine Capital, which reported holding $160.5 million worth of stock at the end of September. It was followed by Adage Capital Management with a $129.3 million position. Other investors bullish on the company included Adage Capital Management, Lone Pine Capital, and Bares Capital Management. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Under Armour Inc (NYSE:UA), around 2.63% of its 13F portfolio. Lone Pine Capital is also relatively very bullish on the stock, designating 0.95 percent of its 13F equity portfolio to UA.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Under Armour Inc (NYSE:UA) headfirst. Lone Pine Capital,  initiated the biggest position in Under Armour Inc (NYSE:UA). Lone Pine Capital had $79.7 million invested in the company at the end of the quarter.  Renaissance Technologies also initiated a $13.3 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management,  Renaissance Technologies, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Under Armour Inc (NYSE:UA) but similarly valued. These stocks are Primerica, Inc. (NYSE:PRI), Everbridge, Inc. (NASDAQ:EVBG), Helen of Troy Limited (NASDAQ:HELE), and Healthequity Inc (NASDAQ:HQY). This group of stocks’ market values are closest to UA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRI 23 303962 -5
EVBG 31 796566 -6
HELE 16 135725 -1
HQY 19 96054 -4
Average 22.25 333077 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $333 million. That figure was $661 million in UA’s case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand Helen of Troy Limited (NASDAQ:HELE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Under Armour Inc (NYSE:UA) 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 UA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UA were disappointed as the stock returned 9.7% 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.