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Hedge Funds Are Coming Back To Carter’s, Inc. (CRI)

Asma UL Husna

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Carter's, Inc. (NYSE:CRI) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Carter's, Inc. (NYSE:CRI) a splendid investment today? Money managers were buying. The number of long hedge fund bets rose by 10 recently. Carter's, Inc. (NYSE:CRI) was in 33 hedge funds' portfolios at the end of June. The all time high for this statistics is 46. Our calculations also showed that CRI isn't among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ric Dillon Diamond Hill Capital
Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we're going to take a peek at the fresh hedge fund action encompassing Carter's, Inc. (NYSE:CRI).

What have hedge funds been doing with Carter's, Inc. (NYSE:CRI)?

At Q2's end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in CRI 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 Carter's, Inc. (NYSE:CRI) was held by Citadel Investment Group, which reported holding $57.5 million worth of stock at the end of September. It was followed by Polaris Capital Management with a $34.9 million position. Other investors bullish on the company included Diamond Hill Capital, Balyasny Asset Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to Carter's, Inc. (NYSE:CRI), around 1.72% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.77 percent of its 13F equity portfolio to CRI.

As one would reasonably expect, key hedge funds have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Carter's, Inc. (NYSE:CRI). Balyasny Asset Management had $30.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $13.4 million position during the quarter. The other funds with brand new CRI positions are Louis Bacon's Moore Global Investments, Steve Cohen's Point72 Asset Management, and Israel Englander's Millennium Management.

Let's go over hedge fund activity in other stocks similar to Carter's, Inc. (NYSE:CRI). We will take a look at Allakos Inc. (NASDAQ:ALLK), Rexnord Corp (NYSE:RXN), ASGN Incorporated (NYSE:ASGN), Companhia Brasileira de Distrib. (NYSE:CBD), Appian Corporation (NASDAQ:APPN), LG Display Co Ltd. (NYSE:LPL), and Kinsale Capital Group, Inc. (NASDAQ:KNSL). All of these stocks' market caps match CRI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLK,14,311817,2 RXN,27,348031,8 ASGN,13,73867,-6 CBD,6,19316,1 APPN,18,467607,1 LPL,5,16158,1 KNSL,14,37234,7 Average,13.9,182004,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $269 million in CRI's case. Rexnord Corp (NYSE:RXN) is the most popular stock in this table. On the other hand LG Display Co Ltd. (NYSE:LPL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Carter's, Inc. (NYSE:CRI) is more popular among hedge funds. Our overall hedge fund sentiment score for CRI is 81.5. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately CRI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CRI were disappointed as the stock returned -1.3% since the end of 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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