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Is Carbonite Inc (CARB) Going To Burn These Hedge Funds ?

Reymerlyn Martin

"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Carbonite Inc (NASDAQ:CARB) and see how it was affected.

Is Carbonite Inc (NASDAQ:CARB) a bargain? The best stock pickers are getting less optimistic. The number of long hedge fund bets decreased by 1 lately. Our calculations also showed that CARB isn't among the 30 most popular stocks among hedge funds (see the video below). CARB was in 19 hedge funds' portfolios at the end of June. There were 20 hedge funds in our database with CARB holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Jack Ripsteen Tim Ripsteen Potrero Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the latest hedge fund action regarding Carbonite Inc (NASDAQ:CARB).

How are hedge funds trading Carbonite Inc (NASDAQ:CARB)?

At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in CARB a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CARB_oct2019

Among these funds, Stadium Capital Management held the most valuable stake in Carbonite Inc (NASDAQ:CARB), which was worth $36.1 million at the end of the second quarter. On the second spot was Indaba Capital Management which amassed $22.9 million worth of shares. Moreover, Portolan Capital Management, Marshall Wace LLP, and Potrero Capital Research were also bullish on Carbonite Inc (NASDAQ:CARB), allocating a large percentage of their portfolios to this stock.

Due to the fact that Carbonite Inc (NASDAQ:CARB) has faced falling interest from hedge fund managers, logic holds that there were a few funds who were dropping their entire stakes last quarter. At the top of the heap, Paul Singer's Elliott Management said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, totaling about $29.4 million in stock. Ken Griffin's fund, Citadel Investment Group, also dropped its stock, about $4.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Carbonite Inc (NASDAQ:CARB). These stocks are Forrester Research, Inc. (NASDAQ:FORR), The Andersons, Inc. (NASDAQ:ANDE), TPI Composites, Inc. (NASDAQ:TPIC), and Seacor Holdings, Inc. (NYSE:CKH). All of these stocks' market caps are similar to CARB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FORR,10,61046,-3 ANDE,5,37702,-3 TPIC,16,169109,-3 CKH,14,138413,3 Average,11.25,101568,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $125 million in CARB's case. TPI Composites, Inc. (NASDAQ:TPIC) is the most popular stock in this table. On the other hand The Andersons, Inc. (NASDAQ:ANDE) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Carbonite Inc (NASDAQ:CARB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CARB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CARB were disappointed as the stock returned -40.5% during the third 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 many of these stocks already outperformed the market in Q3.

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

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