We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Compass Minerals International, Inc. (NYSE:CMP) in this article.
Compass Minerals International, Inc. (NYSE:CMP) has experienced a decrease in enthusiasm from smart money recently. CMP was in 13 hedge funds' portfolios at the end of December. There were 15 hedge funds in our database with CMP positions at the end of the previous quarter. Our calculations also showed that CMP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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. 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 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a glance at the recent hedge fund action encompassing Compass Minerals International, Inc. (NYSE:CMP).
What have hedge funds been doing with Compass Minerals International, Inc. (NYSE:CMP)?
Heading into the first quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the third quarter of 2019. On the other hand, there were a total of 12 hedge funds with a bullish position in CMP a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Compass Minerals International, Inc. (NYSE:CMP) was held by 40 North Management, which reported holding $81.2 million worth of stock at the end of September. It was followed by Cove Street Capital with a $49.8 million position. Other investors bullish on the company included Caspian Capital Partners, Lodge Hill Capital, and Jade Capital Advisors. In terms of the portfolio weights assigned to each position Caspian Capital Partners allocated the biggest weight to Compass Minerals International, Inc. (NYSE:CMP), around 18.87% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, setting aside 6.59 percent of its 13F equity portfolio to CMP.
Judging by the fact that Compass Minerals International, Inc. (NYSE:CMP) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their entire stakes heading into Q4. It's worth mentioning that Joseph A. Jolson's Harvest Capital Strategies sold off the largest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $4.8 million in stock. D. E. Shaw's fund, D E Shaw, also dumped its stock, about $3.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Compass Minerals International, Inc. (NYSE:CMP). These stocks are Pretium Resources Inc (NYSE:PVG), Retail Opportunity Investments Corp (NASDAQ:ROIC), Focus Financial Partners Inc. (NASDAQ:FOCS), and Change Healthcare Inc. (NASDAQ:CHNG). This group of stocks' market values are similar to CMP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PVG,24,120345,2 ROIC,21,99614,1 FOCS,12,47432,1 CHNG,25,311536,3 Average,20.5,144732,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $165 million in CMP's case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 12 bullish hedge fund positions. Compass Minerals International, Inc. (NYSE:CMP) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CMP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CMP investors were disappointed as the stock returned -32.6% 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 most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.