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Is Carlyle Group Inc (CG) A Good Stock To Buy?

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·6 min read
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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Carlyle Group Inc (NASDAQ:CG).

Is CG a good stock to buy? Carlyle Group Inc (NASDAQ:CG) investors should pay attention to a decrease in support from the world's most elite money managers lately. Carlyle Group Inc (NASDAQ:CG) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistic is 26. There were 26 hedge funds in our database with CG holdings at the end of March. Our calculations also showed that CG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Robert Pohly of Samlyn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's analyze the recent hedge fund action surrounding Carlyle Group Inc (NASDAQ:CG).

Do Hedge Funds Think CG Is A Good Stock To Buy Now?

At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in CG a year ago. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is CG A Good Stock To Buy?
Is CG A Good Stock To Buy?

Among these funds, Alkeon Capital Management held the most valuable stake in Carlyle Group Inc (NASDAQ:CG), which was worth $274.4 million at the end of the second quarter. On the second spot was Samlyn Capital which amassed $107.2 million worth of shares. Markel Gayner Asset Management, Schonfeld Strategic Advisors, and Moore Global Investments 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 Callodine Capital Management allocated the biggest weight to Carlyle Group Inc (NASDAQ:CG), around 3.33% of its 13F portfolio. Samlyn Capital is also relatively very bullish on the stock, earmarking 1.57 percent of its 13F equity portfolio to CG.

Due to the fact that Carlyle Group Inc (NASDAQ:CG) has faced a decline in interest from the smart money, we can see that there was a specific group of money managers who were dropping their positions entirely by the end of the second quarter. Interestingly, Sander Gerber's Hudson Bay Capital Management dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $4.4 million in stock, and Allon Hellmann's Full18 Capital was right behind this move, as the fund dumped about $3.9 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Carlyle Group Inc (NASDAQ:CG) but similarly valued. These stocks are Brookfield Infrastructure Partners L.P. (NYSE:BIP), Elanco Animal Health Incorporated (NYSE:ELAN), Wix.Com Ltd (NASDAQ:WIX), ON Semiconductor Corporation (NASDAQ:ON), Markel Corporation (NYSE:MKL), TAL Education Group (NYSE:TAL), and WPP Plc (NASDAQ:WPP). This group of stocks' market valuations resemble CG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BIP,16,71356,4 ELAN,42,1996818,0 WIX,35,1381019,-5 ON,44,1021403,3 MKL,33,709075,3 TAL,27,606671,-11 WPP,6,23931,1 Average,29,830039,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $830 million. That figure was $602 million in CG's case. ON Semiconductor Corporation (NASDAQ:ON) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 6 bullish hedge fund positions. Carlyle Group Inc (NASDAQ:CG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CG is 44. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on CG as the stock returned 18.7% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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