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Is CTAS Stock A Buy or Sell?

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At Insider Monkey, we pore over the filings of nearly 887 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 December 31st. In this article, we will use that wealth of knowledge to determine whether or not Cintas Corporation (NASDAQ:CTAS) makes for a good investment right now.

Is CTAS stock a buy? Cintas Corporation (NASDAQ:CTAS) was in 36 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 45. CTAS has seen a decrease in hedge fund interest recently. There were 38 hedge funds in our database with CTAS positions at the end of the third quarter. Our calculations also showed that CTAS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.

AQR CAPITAL MANAGEMENT
AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 go over the recent hedge fund action regarding Cintas Corporation (NASDAQ:CTAS).

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

At the end of December, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CTAS over the last 22 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is CTAS A Good Stock To Buy?
Is CTAS A Good Stock To Buy?

The largest stake in Cintas Corporation (NASDAQ:CTAS) was held by Alkeon Capital Management, which reported holding $135.9 million worth of stock at the end of December. It was followed by Chilton Investment Company with a $131.9 million position. Other investors bullish on the company included AQR Capital Management, Bristol Gate Capital Partners, and Adage Capital Management. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to Cintas Corporation (NASDAQ:CTAS), around 4.45% of its 13F portfolio. Harbor Spring Capital is also relatively very bullish on the stock, designating 4.11 percent of its 13F equity portfolio to CTAS.

Seeing as Cintas Corporation (NASDAQ:CTAS) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers that slashed their entire stakes by the end of the fourth quarter. Interestingly, James Parsons's Junto Capital Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, valued at an estimated $45.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the fourth quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cintas Corporation (NASDAQ:CTAS) but similarly valued. We will take a look at Chewy, Inc. (NYSE:CHWY), MSCI Inc (NYSE:MSCI), Brown-Forman Corporation (NYSE:BF), ING Groep N.V. (NYSE:ING), Sempra Energy (NYSE:SRE), Eni SpA (NYSE:E), and Fiat Chrysler Automobiles NV (NYSE:FCAU). This group of stocks' market valuations match CTAS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHWY,38,728528,-8 MSCI,41,984592,-6 BF,29,1575074,-3 ING,9,397074,0 SRE,33,778325,1 E,4,42161,-1 FCAU,15,223893,-5 Average,24.1,675664,-3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $676 million. That figure was $746 million in CTAS's case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 4 bullish hedge fund positions. Cintas Corporation (NASDAQ:CTAS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CTAS is 70.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately CTAS wasn't nearly as popular as these 30 stocks and hedge funds that were betting on CTAS were disappointed as the stock returned -1.2% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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