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Is CTAS A Good Stock To Buy Now?

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Abigail Fisher
·6 min read
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After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Cintas Corporation (NASDAQ:CTAS).

Is CTAS a good stock to buy now? The smart money was becoming hopeful. The number of bullish hedge fund bets went up by 4 in recent months. Cintas Corporation (NASDAQ:CTAS) was in 38 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 45. Our calculations also showed that CTAS 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 34 hedge funds in our database with CTAS positions at the end of the second quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY
CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

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 recent hedge fund action regarding Cintas Corporation (NASDAQ:CTAS).

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

Heading into the fourth quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the second quarter of 2020. On the other hand, there were a total of 41 hedge funds with a bullish position in CTAS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Cintas Corporation (NASDAQ:CTAS) was held by Alkeon Capital Management, which reported holding $144.6 million worth of stock at the end of September. It was followed by Chilton Investment Company with a $131.2 million position. Other investors bullish on the company included AQR Capital Management, Bristol Gate Capital Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to Cintas Corporation (NASDAQ:CTAS), around 4.57% of its 13F portfolio. Harbor Spring Capital is also relatively very bullish on the stock, earmarking 4.41 percent of its 13F equity portfolio to CTAS.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Junto Capital Management, managed by James Parsons, assembled the biggest position in Cintas Corporation (NASDAQ:CTAS). Junto Capital Management had $45.9 million invested in the company at the end of the quarter. Principal Global Investors's Columbus Circle Investors also made a $13.2 million investment in the stock during the quarter. The other funds with brand new CTAS positions are Matthew Hulsizer's PEAK6 Capital Management, Jack Woodruff's Candlestick Capital Management, and Steve Cohen's Point72 Asset Management.

Let's check out hedge fund activity in other stocks similar to Cintas Corporation (NASDAQ:CTAS). These stocks are Southern Copper Corporation (NYSE:SCCO), Dow Inc. (NYSE:DOW), NXP Semiconductors NV (NASDAQ:NXPI), Exelon Corporation (NASDAQ:EXC), Chipotle Mexican Grill, Inc. (NYSE:CMG), Enterprise Products Partners L.P. (NYSE:EPD), and Sempra Energy (NYSE:SRE). All of these stocks' market caps are similar to CTAS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCCO,27,347458,8 DOW,42,512456,7 NXPI,68,1636793,1 EXC,29,848331,-1 CMG,52,3905349,11 EPD,30,178191,0 SRE,32,556176,-3 Average,40,1140679,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1141 million. That figure was $742 million in CTAS's case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 27 bullish hedge fund positions. Cintas Corporation (NASDAQ:CTAS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CTAS is 47.7. 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. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately CTAS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CTAS investors were disappointed as the stock returned 7.6% since the end of September (through 12/18) 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.

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

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