Were These Hedge Funds Right About Loading Up On Newell Brands Inc. (NWL)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Newell Brands Inc. (NASDAQ:NWL)? The smart money sentiment can provide an answer to this question.

Newell Brands Inc. (NASDAQ:NWL) has seen an increase in hedge fund interest recently. Newell Brands Inc. (NASDAQ:NWL) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 51. There were 24 hedge funds in our database with NWL positions at the end of the first quarter. Our calculations also showed that NWL isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In today’s marketplace there are a multitude of signals investors employ to value their holdings. A pair of the most useful signals are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can trounce the broader indices by a healthy margin (see the details here).

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the fresh hedge fund action surrounding Newell Brands Inc. (NASDAQ:NWL).

Hedge fund activity in Newell Brands Inc. (NASDAQ:NWL)

Heading into the third quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NWL over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Icahn Capital LP held the most valuable stake in Newell Brands Inc. (NASDAQ:NWL), which was worth $694 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $384.8 million worth of shares. Melvin Capital Management, Arrowstreet Capital, and Millennium Management 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 Southport Management allocated the biggest weight to Newell Brands Inc. (NASDAQ:NWL), around 5.35% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, dishing out 5.16 percent of its 13F equity portfolio to NWL.

As one would reasonably expect, some big names have jumped into Newell Brands Inc. (NASDAQ:NWL) headfirst. Melvin Capital Management, managed by Gabriel Plotkin, assembled the most valuable position in Newell Brands Inc. (NASDAQ:NWL). Melvin Capital Management had $39.7 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $12.6 million investment in the stock during the quarter. The following funds were also among the new NWL investors: Constantinos J. Christofilis’s Archon Capital Management, Steve Cohen’s Point72 Asset Management, and Jonathan Dawson’s Southport Management.

Let’s now review hedge fund activity in other stocks similar to Newell Brands Inc. (NASDAQ:NWL). These stocks are Lamar Advertising Company (REIT) (NASDAQ:LAMR), The Interpublic Group of Companies Inc (NYSE:IPG), American Airlines Group Inc (NASDAQ:AAL), RealPage, Inc. (NASDAQ:RP), Commerce Bancshares, Inc. (NASDAQ:CBSH), Dolby Laboratories, Inc. (NYSE:DLB), and UGI Corp (NYSE:UGI). This group of stocks’ market caps resemble NWL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LAMR 44 419738 10
IPG 22 501395 1
AAL 47 436618 11
RP 39 739694 10
CBSH 16 52750 1
DLB 28 489505 -1
UGI 26 220118 -1
Average 31.7 408545 4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $1244 million in NWL’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 16 bullish hedge fund positions. Newell Brands Inc. (NASDAQ:NWL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NWL is 56.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on NWL as the stock returned 12.8% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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