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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Citi Trends, Inc. (NASDAQ:CTRN) to find out whether there were any major changes in hedge funds' views.
Citi Trends, Inc. (NASDAQ:CTRN) was in 24 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CTRN shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 19 hedge funds in our database with CTRN positions at the end of the fourth quarter. Our calculations also showed that CTRN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Charles Davidson of Wexford Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to check out the key hedge fund action regarding Citi Trends, Inc. (NASDAQ:CTRN).
Do Hedge Funds Think CTRN Is A Good Stock To Buy Now?
At first quarter's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the fourth quarter of 2020. By comparison, 15 hedge funds held shares or bullish call options in CTRN 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 Citi Trends, Inc. (NASDAQ:CTRN) was held by Cowbird Capital, which reported holding $37.1 million worth of stock at the end of December. It was followed by Millennium Management with a $36.5 million position. Other investors bullish on the company included Highside Global Management, Two Sigma Advisors, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cowbird Capital allocated the biggest weight to Citi Trends, Inc. (NASDAQ:CTRN), around 16.2% of its 13F portfolio. AWH Capital is also relatively very bullish on the stock, setting aside 6.1 percent of its 13F equity portfolio to CTRN.
As aggregate interest increased, specific money managers have jumped into Citi Trends, Inc. (NASDAQ:CTRN) headfirst. Millennium Management, managed by Israel Englander, assembled the largest position in Citi Trends, Inc. (NASDAQ:CTRN). Millennium Management had $36.5 million invested in the company at the end of the quarter. Zach Petrone's Highside Global Management also made a $12.8 million investment in the stock during the quarter. The following funds were also among the new CTRN investors: Jay Genzer's Thames Capital Management, Noam Gottesman's GLG Partners, and Charles Davidson and Joseph Jacobs's Wexford Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Citi Trends, Inc. (NASDAQ:CTRN) but similarly valued. We will take a look at Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), Orthofix Medical Inc (NASDAQ:OFIX), Westlake Chemical Partners LP (NYSE:WLKP), Veru Inc. (NASDAQ:VERU), Par Pacific Holdings, Inc. (NYSE:PARR), Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), and Clear Channel Outdoor Holdings, Inc. (NYSE:CCO). All of these stocks' market caps are similar to CTRN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LXRX,13,75949,2 OFIX,17,137415,-2 WLKP,3,2347,-1 VERU,12,110502,6 PARR,25,169035,11 AOSL,13,94013,1 CCO,29,193956,-2 Average,16,111888,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $171 million in CTRN's case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand Westlake Chemical Partners LP (NYSE:WLKP) is the least popular one with only 3 bullish hedge fund positions. Citi Trends, Inc. (NASDAQ:CTRN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CTRN is 80.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately CTRN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CTRN were disappointed as the stock returned -3.7% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.