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Is CMD A Good Stock To Buy According To Hedge Funds?

Abigail Fisher
·6 min read

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Cantel Medical Corp. (NYSE:CMD) makes for a good investment right now.

Is CMD a good stock to buy now? Cantel Medical Corp. (NYSE:CMD) shareholders have witnessed an increase in hedge fund interest in recent months. Cantel Medical Corp. (NYSE:CMD) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 23. There were 19 hedge funds in our database with CMD holdings at the end of June. Our calculations also showed that CMD 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw
David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we're going to take a look at the key hedge fund action encompassing Cantel Medical Corp. (NYSE:CMD).

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

At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CMD over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Cantel Medical Corp. (NYSE:CMD) was held by Leonard Green & Partners, which reported holding $114.2 million worth of stock at the end of September. It was followed by Diker Management with a $45.2 million position. Other investors bullish on the company included Balyasny Asset Management, Intrinsic Edge Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Diker Management allocated the biggest weight to Cantel Medical Corp. (NYSE:CMD), around 28.17% of its 13F portfolio. Leonard Green & Partners is also relatively very bullish on the stock, dishing out 5.94 percent of its 13F equity portfolio to CMD.

As aggregate interest increased, specific money managers have jumped into Cantel Medical Corp. (NYSE:CMD) headfirst. Intrinsic Edge Capital, managed by Mark Coe, initiated the most outsized position in Cantel Medical Corp. (NYSE:CMD). Intrinsic Edge Capital had $6.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $1.9 million position during the quarter. The following funds were also among the new CMD investors: Greg Eisner's Engineers Gate Manager, Noam Gottesman's GLG Partners, and Donald Sussman's Paloma Partners.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cantel Medical Corp. (NYSE:CMD) but similarly valued. These stocks are Corsair Gaming, Inc. (NASDAQ:CRSR), Akcea Therapeutics, Inc. (NASDAQ:AKCA), Rush Enterprises, Inc. (NASDAQ:RUSHA), AdaptHealth Corp. (NASDAQ:AHCO), CryoPort, Inc. (NASDAQ:CYRX), Eldorado Gold Corp (NYSE:EGO), and Avis Budget Group Inc. (NASDAQ:CAR). This group of stocks' market values match CMD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRSR,13,67972,13 AKCA,13,21755,2 RUSHA,17,71980,-1 AHCO,14,251745,2 CYRX,19,162892,7 EGO,15,231959,3 CAR,34,835613,13 Average,17.9,234845,5.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.9 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $205 million in CMD's case. Avis Budget Group Inc. (NASDAQ:CAR) is the most popular stock in this table. On the other hand Corsair Gaming, Inc. (NASDAQ:CRSR) is the least popular one with only 13 bullish hedge fund positions. Cantel Medical Corp. (NYSE:CMD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CMD is 53.4. 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 gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on CMD as the stock returned 73% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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