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Did Hedge Funds Make The Right Call On Casey’s General Stores, Inc. (CASY)?

Abigail Fisher

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Casey's General Stores, Inc. (NASDAQ:CASY) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Casey's General Stores, Inc. (NASDAQ:CASY) shareholders have witnessed an increase in enthusiasm from smart money recently. CASY was in 23 hedge funds' portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with CASY positions at the end of the previous quarter. Our calculations also showed that CASY isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_189632" align="aligncenter" width="396"] David Harding of Winton Capital Management[/caption]

David Harding
David Harding

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we're going to take a gander at the recent hedge fund action encompassing Casey's General Stores, Inc. (NASDAQ:CASY).

How are hedge funds trading Casey's General Stores, Inc. (NASDAQ:CASY)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in CASY a year ago. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in Casey's General Stores, Inc. (NASDAQ:CASY) was held by AQR Capital Management, which reported holding $48.1 million worth of stock at the end of September. It was followed by Valinor Management LLC with a $44.5 million position. Other investors bullish on the company included Millennium Management, Rip Road Capital, and Winton Capital Management. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to Casey's General Stores, Inc. (NASDAQ:CASY), around 6.01% of its 13F portfolio. Valinor Management LLC is also relatively very bullish on the stock, earmarking 3.98 percent of its 13F equity portfolio to CASY.

As industrywide interest jumped, key money managers were breaking ground themselves. Valinor Management LLC, managed by David Gallo, assembled the most outsized position in Casey's General Stores, Inc. (NASDAQ:CASY). Valinor Management LLC had $44.5 million invested in the company at the end of the quarter. Dennis Goldstein's Rip Road Capital also made a $9.1 million investment in the stock during the quarter. The other funds with brand new CASY positions are Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Peter Muller's PDT Partners.

Let's go over hedge fund activity in other stocks similar to Casey's General Stores, Inc. (NASDAQ:CASY). We will take a look at Acceleron Pharma Inc (NASDAQ:XLRN), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), People's United Financial, Inc. (NASDAQ:PBCT), and Steel Dynamics, Inc. (NASDAQ:STLD). This group of stocks' market caps match CASY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XLRN,38,775310,11 RETA,33,398437,4 PBCT,22,43269,0 STLD,27,330665,-8 Average,30,386920,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $387 million. That figure was $159 million in CASY's case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand People's United Financial, Inc. (NASDAQ:PBCT) is the least popular one with only 22 bullish hedge fund positions. Casey's General Stores, Inc. (NASDAQ:CASY) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately CASY wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CASY investors were disappointed as the stock returned 13.1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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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