U.S. Markets close in 4 hrs 46 mins

Should You Buy Culp, Inc. (CULP)?

Nina Todic

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Culp, Inc. (NYSE:CULP).

Hedge fund interest in Culp, Inc. (NYSE:CULP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as PICO Holdings Inc (NASDAQ:PICO), Mallinckrodt plc (NYSE:MNK), and Smith Micro Software, Inc. (NASDAQ:SMSI) to gather more data points. Our calculations also showed that CULP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are plenty of methods investors employ to evaluate publicly traded companies. A duo of the most innovative methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can outclass their index-focused peers by a very impressive amount (see the details here).

[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]

Chuck Royce

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to review the fresh hedge fund action encompassing Culp, Inc. (NYSE:CULP).

How have hedgies been trading Culp, Inc. (NYSE:CULP)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in CULP a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Culp, Inc. (NYSE:CULP), which was worth $12.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $0.6 million worth of shares. D E Shaw, Two Sigma Advisors, 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 Renaissance Technologies allocated the biggest weight to Culp, Inc. (NYSE:CULP), around 0.01% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.0048 percent of its 13F equity portfolio to CULP.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's also examine hedge fund activity in other stocks similar to Culp, Inc. (NYSE:CULP). These stocks are PICO Holdings Inc (NASDAQ:PICO), Mallinckrodt plc (NYSE:MNK), Smith Micro Software, Inc. (NASDAQ:SMSI), and GSI Technology, Inc. (NASDAQ:GSIT). This group of stocks' market caps are similar to CULP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PICO,11,27759,1 MNK,20,34235,0 SMSI,4,3943,2 GSIT,6,17724,2 Average,10.25,20915,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $15 million in CULP's case. Mallinckrodt plc (NYSE:MNK) is the most popular stock in this table. On the other hand Smith Micro Software, Inc. (NASDAQ:SMSI) is the least popular one with only 4 bullish hedge fund positions. Culp, Inc. (NYSE:CULP) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CULP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CULP investors were disappointed as the stock returned -0.4% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

Related Content