In this article we will check out the progression of hedge fund sentiment towards Ceridian HCM Holding Inc. (NYSE:CDAY) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is CDAY a good stock to buy? Hedge funds were taking a bullish view. The number of bullish hedge fund bets moved up by 6 recently. Ceridian HCM Holding Inc. (NYSE:CDAY) was in 36 hedge funds' portfolios at the end of September. The all time high for this statistic is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CDAY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 30 hedge funds in our database with CDAY holdings at the end of June. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
Donald Sussman of Paloma Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now we're going to take a gander at the new hedge fund action surrounding Ceridian HCM Holding Inc. (NYSE:CDAY).
Do Hedge Funds Think CDAY Is A Good Stock To Buy Now?
At the end of September, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in CDAY a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the biggest position in Ceridian HCM Holding Inc. (NYSE:CDAY). Select Equity Group has a $712.8 million position in the stock, comprising 3.5% of its 13F portfolio. On Select Equity Group's heels is Ashe Capital, led by William Crowley, William Harker, and Stephen Blass, holding a $220.3 million position; 16% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism contain Alex Sacerdote's Whale Rock Capital Management, Andreas Halvorsen's Viking Global and Panayotis Takis Sparaggis's Alkeon Capital Management. In terms of the portfolio weights assigned to each position Ashe Capital allocated the biggest weight to Ceridian HCM Holding Inc. (NYSE:CDAY), around 15.98% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, setting aside 3.54 percent of its 13F equity portfolio to CDAY.
As industrywide interest jumped, key hedge funds have jumped into Ceridian HCM Holding Inc. (NYSE:CDAY) headfirst. Viking Global, managed by Andreas Halvorsen, established the largest position in Ceridian HCM Holding Inc. (NYSE:CDAY). Viking Global had $168.4 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $14.5 million position during the quarter. The following funds were also among the new CDAY investors: Ravee Mehta's Nishkama Capital, Benjamin A. Smith's Laurion Capital Management, and Donald Sussman's Paloma Partners.
Let's now take a look at hedge fund activity in other stocks similar to Ceridian HCM Holding Inc. (NYSE:CDAY). We will take a look at Waters Corporation (NYSE:WAT), Jacobs Engineering Group Inc. (NYSE:J), Hewlett Packard Enterprise Company (NYSE:HPE), The AES Corporation (NYSE:AES), Fortune Brands Home & Security Inc (NYSE:FBHS), Qiagen NV (NYSE:QGEN), and Solaredge Technologies Inc (NASDAQ:SEDG). This group of stocks' market values are closest to CDAY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WAT,32,927887,-6 J,27,920744,-5 HPE,34,726468,3 AES,32,579345,1 FBHS,33,298974,-1 QGEN,29,580443,-3 SEDG,31,553013,6 Average,31.1,655268,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.1 hedge funds with bullish positions and the average amount invested in these stocks was $655 million. That figure was $1809 million in CDAY's case. Hewlett Packard Enterprise Company (NYSE:HPE) is the most popular stock in this table. On the other hand Jacobs Engineering Group Inc. (NYSE:J) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Ceridian HCM Holding Inc. (NYSE:CDAY) is more popular among hedge funds. Our overall hedge fund sentiment score for CDAY is 90. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on CDAY as the stock returned 18.1% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.