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Is CTLT Stock A Buy or Sell?

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After several tireless days we have finished crunching the numbers from nearly 900 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 December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Catalent Inc (NYSE:CTLT).

Is CTLT stock a buy? Investors who are in the know were turning less bullish. The number of long hedge fund positions shrunk by 5 recently. Catalent Inc (NYSE:CTLT) was in 35 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 40. Our calculations also showed that CTLT isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 40 hedge funds in our database with CTLT positions at the end of the third quarter.

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 124 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.

Third Point
Third Point

Dan Loeb of Third Point

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 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 take a glance at the recent hedge fund action surrounding Catalent Inc (NYSE:CTLT).

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

At the end of December, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in CTLT a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Third Point held the most valuable stake in Catalent Inc (NYSE:CTLT), which was worth $127.5 million at the end of the fourth quarter. On the second spot was Viking Global which amassed $125.3 million worth of shares. Suvretta Capital Management, Millennium Management, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to Catalent Inc (NYSE:CTLT), around 3.46% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, setting aside 2.58 percent of its 13F equity portfolio to CTLT.

Because Catalent Inc (NYSE:CTLT) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of funds that elected to cut their full holdings by the end of the fourth quarter. Intriguingly, Paolo Mortarotti's Tower House Partners dropped the largest position of all the hedgies tracked by Insider Monkey, comprising close to $43.1 million in stock. Renaissance Technologies, also sold off its stock, about $39.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds by the end of the fourth quarter.

Let's also examine hedge fund activity in other stocks similar to Catalent Inc (NYSE:CTLT). We will take a look at Akamai Technologies, Inc. (NASDAQ:AKAM), Agnico Eagle Mines Limited (NYSE:AEM), Cheniere Energy Partners LP (NYSE:CQP), ONEOK, Inc. (NYSE:OKE), DISH Network Corp. (NASDAQ:DISH), Insulet Corporation (NASDAQ:PODD), and Western Digital Corporation (NASDAQ:WDC). This group of stocks' market values are similar to CTLT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AKAM,33,280317,-7 AEM,36,388901,8 CQP,4,9283,1 OKE,22,105420,2 DISH,57,2021289,-3 PODD,41,1418120,3 WDC,44,1296703,5 Average,33.9,788576,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $789 million. That figure was $839 million in CTLT's case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 4 bullish hedge fund positions. Catalent Inc (NYSE:CTLT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CTLT is 55.5. 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 CTLT wasn't nearly as popular as these 30 stocks and hedge funds that were betting on CTLT were disappointed as the stock returned 2.4% 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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