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Carriage Services, Inc. (CSV): Hedge Funds In Wait-and-See Mode

Reymerlyn Martin

"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 Carriage Services, Inc. (NYSE:CSV).

Hedge fund interest in Carriage Services, Inc. (NYSE:CSV) 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 Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), Petmed Express Inc (NASDAQ:PETS), and PlayAGS, Inc. (NYSE:AGS) to gather more data points. Our calculations also showed that CSV 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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_673876" align="aligncenter" width="1613"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

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  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to analyze the recent hedge fund action surrounding Carriage Services, Inc. (NYSE:CSV).

How have hedgies been trading Carriage Services, Inc. (NYSE:CSV)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in CSV a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the most valuable position in Carriage Services, Inc. (NYSE:CSV), worth close to $25.7 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $4.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish comprise Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Tudor Investment Corp allocated the biggest weight to Carriage Services, Inc. (NYSE:CSV), around 0.03% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to CSV.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AQR Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Winton Capital Management).

Let's now take a look at hedge fund activity in other stocks similar to Carriage Services, Inc. (NYSE:CSV). These stocks are Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), Petmed Express Inc (NASDAQ:PETS), PlayAGS, Inc. (NYSE:AGS), and Spirit MTA REIT (NYSE:SMTA). This group of stocks' market valuations are similar to CSV's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRNX,11,159722,1 PETS,13,66497,-4 AGS,16,46231,4 SMTA,17,114467,-2 Average,14.25,96729,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $43 million in CSV's case. Spirit MTA REIT (NYSE:SMTA) is the most popular stock in this table. On the other hand Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Carriage Services, Inc. (NYSE:CSV) is even less popular than CRNX. Hedge funds clearly dropped the ball on CSV as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on CSV as the stock returned 18% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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