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Hedge Funds Are Selling Cintas Corporation (CTAS)

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  • CTAS

In this article we will analyze whether Cintas Corporation (NASDAQ:CTAS) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Cintas Corporation (NASDAQ:CTAS) a healthy stock for your portfolio? The best stock pickers were in a bearish mood. The number of long hedge fund bets dropped by 4 in recent months. Cintas Corporation (NASDAQ:CTAS) was in 32 hedge funds' portfolios at the end of March. The all time high for this statistic is 45. Our calculations also showed that CTAS 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.

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. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 review the new hedge fund action encompassing Cintas Corporation (NASDAQ:CTAS).

Do Hedge Funds Think CTAS Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CTAS over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Alkeon Capital Management was the largest shareholder of Cintas Corporation (NASDAQ:CTAS), with a stake worth $131.3 million reported as of the end of March. Trailing Alkeon Capital Management was Chilton Investment Company, which amassed a stake valued at $124.6 million. D E Shaw, Bristol Gate Capital Partners, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bluegrass Capital Partners allocated the biggest weight to Cintas Corporation (NASDAQ:CTAS), around 5.05% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, designating 4.14 percent of its 13F equity portfolio to CTAS.

Due to the fact that Cintas Corporation (NASDAQ:CTAS) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of hedge funds that elected to cut their full holdings last quarter. Interestingly, Jack Woodruff's Candlestick Capital Management dropped the largest stake of the 750 funds watched by Insider Monkey, worth about $23 million in stock, and Nehal Chopra's Ratan Capital Group was right behind this move, as the fund cut about $17.2 million worth. These transactions are interesting, as total hedge fund interest fell by 4 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. We will take a look at Xcel Energy Inc (NASDAQ:XEL), Lufax Holding Ltd (NYSE:LU), Phillips 66 (NYSE:PSX), PPG Industries, Inc. (NYSE:PPG), Alcon Inc. (NYSE:ALC), O'Reilly Automotive Inc (NASDAQ:ORLY), and Paychex, Inc. (NASDAQ:PAYX). All of these stocks' market caps are similar to CTAS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XEL,18,200349,-10 LU,9,208197,-2 PSX,24,290593,-2 PPG,25,173679,-9 ALC,23,753974,-1 ORLY,45,2704943,-4 PAYX,25,872105,-7 Average,24.1,743406,-5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $743 million. That figure was $583 million in CTAS's case. O'Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Lufax Holding Ltd (NYSE:LU) is the least popular one with only 9 bullish hedge fund positions. Cintas Corporation (NASDAQ:CTAS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CTAS is 54.3. 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 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 22.8% in 2021 through July 2nd and still beat the market by 6 percentage points. Hedge funds were also right about betting on CTAS, though not to the same extent, as the stock returned 12.6% since Q1 (through July 2nd) and outperformed the market as well.

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