Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 Ceridian HCM Holding Inc. (NYSE:CDAY).
Ceridian HCM Holding Inc. (NYSE:CDAY) was in 31 hedge funds' portfolios at the end of December. CDAY has experienced an increase in hedge fund sentiment lately. There were 30 hedge funds in our database with CDAY positions at the end of the previous quarter. Our calculations also showed that CDAY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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_26397" align="aligncenter" width="399"] Ray Dalio of Bridgewater Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to go over the recent hedge fund action encompassing Ceridian HCM Holding Inc. (NYSE:CDAY).
What have hedge funds been doing with Ceridian HCM Holding Inc. (NYSE:CDAY)?
Heading into the first quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in CDAY a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ceridian HCM Holding Inc. (NYSE:CDAY) was held by Select Equity Group, which reported holding $792.9 million worth of stock at the end of September. It was followed by Ashe Capital with a $180.9 million position. Other investors bullish on the company included Whale Rock Capital Management, Alkeon Capital Management, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Ashe Capital allocated the biggest weight to Ceridian HCM Holding Inc. (NYSE:CDAY), around 13.79% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, setting aside 5.25 percent of its 13F equity portfolio to CDAY.
Now, some big names have jumped into Ceridian HCM Holding Inc. (NYSE:CDAY) headfirst. Holocene Advisors, managed by Brandon Haley, created the largest position in Ceridian HCM Holding Inc. (NYSE:CDAY). Holocene Advisors had $17 million invested in the company at the end of the quarter. Joseph Samuels's Islet Management also initiated a $3.4 million position during the quarter. The following funds were also among the new CDAY investors: Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Ray Dalio's Bridgewater Associates, and Israel Englander's Millennium Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Ceridian HCM Holding Inc. (NYSE:CDAY) but similarly valued. We will take a look at Liberty Property Trust (NYSE:LPT), Luckin Coffee Inc. (NASDAQ:LK), Autohome Inc (NYSE:ATHM), and UGI Corp (NYSE:UGI). This group of stocks' market valuations are similar to CDAY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LPT,31,596139,-1 LK,33,1149093,10 ATHM,13,816653,1 UGI,23,290279,1 Average,25,713041,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $713 million. That figure was $1544 million in CDAY's case. Luckin Coffee Inc. (NASDAQ:LK) is the most popular stock in this table. On the other hand Autohome Inc (NYSE:ATHM) is the least popular one with only 13 bullish hedge fund positions. Ceridian HCM Holding Inc. (NYSE:CDAY) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately CDAY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CDAY were disappointed as the stock returned -29.9% during the same time period 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 many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.