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Do These Hedge Funds Regret Dumping Cintas Corporation (CTAS)?

Reymerlyn Martin
·6 min read

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Cintas Corporation (NASDAQ:CTAS) in this article.

Cintas Corporation (NASDAQ:CTAS) investors should pay attention to a decrease in enthusiasm from smart money lately. Cintas Corporation (NASDAQ:CTAS) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 45. Our calculations also showed that CTAS 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.

CHILTON INVESTMENT COMPANY
CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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. 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 to get excerpts of these letters in your inbox. Now let's go over the new hedge fund action surrounding Cintas Corporation (NASDAQ:CTAS).

What have hedge funds been doing with Cintas Corporation (NASDAQ:CTAS)?

At Q2's end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CTAS over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Richard Chilton's Chilton Investment Company has the number one position in Cintas Corporation (NASDAQ:CTAS), worth close to $104.2 million, amounting to 3.4% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $91 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Panayotis Takis Sparaggis's Alkeon Capital Management, Peter Simmie's Bristol Gate Capital Partners and Amit Nitin Doshi's Harbor Spring Capital. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to Cintas Corporation (NASDAQ:CTAS), around 4.52% of its 13F portfolio. Ratan Capital Group is also relatively very bullish on the stock, setting aside 4.34 percent of its 13F equity portfolio to CTAS.

Since Cintas Corporation (NASDAQ:CTAS) has experienced bearish sentiment from hedge fund managers, it's safe to say that there were a few hedgies that slashed their entire stakes last quarter. Interestingly, Renaissance Technologies sold off the biggest stake of the 750 funds monitored by Insider Monkey, worth an estimated $26.9 million in stock, and Robert B. Gillam's McKinley Capital Management was right behind this move, as the fund dropped about $10.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 8 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Cintas Corporation (NASDAQ:CTAS) but similarly valued. These stocks are WEC Energy Group, Inc. (NYSE:WEC), The Clorox Company (NYSE:CLX), Verisk Analytics, Inc. (NASDAQ:VRSK), IAC/InterActiveCorp (NASDAQ:IAC), Agilent Technologies Inc. (NYSE:A), Paychex, Inc. (NASDAQ:PAYX), and IQVIA Holdings, Inc. (NYSE:IQV). This group of stocks' market caps resemble CTAS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WEC,30,290696,1 CLX,36,1488687,-5 VRSK,36,981827,5 IAC,60,4955863,3 A,38,2815048,3 PAYX,36,877442,-5 IQV,66,3022562,6 Average,43.1,2061732,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.1 hedge funds with bullish positions and the average amount invested in these stocks was $2062 million. That figure was $532 million in CTAS's case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 30 bullish hedge fund positions. Cintas Corporation (NASDAQ:CTAS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CTAS is 25.2. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on CTAS as the stock returned 18.1% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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