How do we determine whether Carter's, Inc. (NYSE:CRI) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's analyze the fresh hedge fund action surrounding Carter's, Inc. (NYSE:CRI).
What does the smart money think about Carter's, Inc. (NYSE:CRI)?
At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2018. On the other hand, there were a total of 31 hedge funds with a bullish position in CRI a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Valinor Management was the largest shareholder of Carter's, Inc. (NYSE:CRI), with a stake worth $63.7 million reported as of the end of March. Trailing Valinor Management was Diamond Hill Capital, which amassed a stake valued at $55.9 million. Polaris Capital Management, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Carter's, Inc. (NYSE:CRI) has experienced declining sentiment from the smart money, we can see that there lies a certain "tier" of funds that decided to sell off their full holdings by the end of the third quarter. Interestingly, Lee Ainslie's Maverick Capital said goodbye to the biggest stake of the 700 funds monitored by Insider Monkey, worth close to $22.2 million in stock, and Sara Nainzadeh's Centenus Global Management was right behind this move, as the fund said goodbye to about $2.8 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Carter's, Inc. (NYSE:CRI). We will take a look at Assured Guaranty Ltd. (NYSE:AGO), Medidata Solutions Inc (NASDAQ:MDSO), Science Applications International Corp (NYSE:SAIC), and Americold Realty Trust (NYSE:COLD). This group of stocks' market values are similar to CRI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGO,34,559263,1 MDSO,16,214798,5 SAIC,28,356290,4 COLD,27,907693,11 Average,26.25,509511,5.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $279 million in CRI's case. Assured Guaranty Ltd. (NYSE:AGO) is the most popular stock in this table. On the other hand Medidata Solutions Inc (NASDAQ:MDSO) is the least popular one with only 16 bullish hedge fund positions. Carter's, Inc. (NYSE:CRI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CRI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CRI investors were disappointed as the stock returned -14.9% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.