Does Charles River Laboratories International Inc. (NYSE:CRL) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Charles River Laboratories International Inc. (NYSE:CRL) was in 24 hedge funds' portfolios at the end of March. CRL investors should be aware of a decrease in hedge fund interest recently. There were 28 hedge funds in our database with CRL holdings at the end of the previous quarter. Our calculations also showed that crl isn't among the 30 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's take a look at the new hedge fund action encompassing Charles River Laboratories International Inc. (NYSE:CRL).
How are hedge funds trading Charles River Laboratories International Inc. (NYSE:CRL)?
At Q1's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CRL over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Charles River Laboratories International Inc. (NYSE:CRL), which was worth $301 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $273.9 million worth of shares. Moreover, Ariel Investments, Millennium Management, and Fisher Asset Management were also bullish on Charles River Laboratories International Inc. (NYSE:CRL), allocating a large percentage of their portfolios to this stock.
Since Charles River Laboratories International Inc. (NYSE:CRL) has witnessed bearish sentiment from the smart money, logic holds that there were a few funds who were dropping their entire stakes heading into Q3. At the top of the heap, Steve Cohen's Point72 Asset Management dropped the biggest stake of the 700 funds tracked by Insider Monkey, totaling an estimated $34.8 million in call options, and Israel Englander's Millennium Management was right behind this move, as the fund dumped about $4 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 4 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Charles River Laboratories International Inc. (NYSE:CRL). These stocks are The Madison Square Garden Company (NYSE:MSG), East West Bancorp, Inc. (NASDAQ:EWBC), CEMEX, S.A.B. de C.V. (NYSE:CX), and Qurate Retail, Inc. (NASDAQ:QRTEA). All of these stocks' market caps are closest to CRL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSG,52,1778621,6 EWBC,29,437635,2 CX,15,90996,5 QRTEA,33,725955,-2 Average,32.25,758302,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $758 million. That figure was $994 million in CRL's case. The Madison Square Garden Company (NYSE:MSG) is the most popular stock in this table. On the other hand CEMEX, S.A.B. de C.V. (NYSE:CX) is the least popular one with only 15 bullish hedge fund positions. Charles River Laboratories International Inc. (NYSE:CRL) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CRL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CRL investors were disappointed as the stock returned -13.5% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.