Is Covenant Transportation Group, Inc. (NASDAQ:CVTI) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Covenant Transportation Group, Inc. (NASDAQ:CVTI) a buy right now? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund bets retreated by 1 recently. Our calculations also showed that CVTI isn't among the 30 most popular stocks among hedge funds.
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 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.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
We're going to view the key hedge fund action regarding Covenant Transportation Group, Inc. (NASDAQ:CVTI).
What does smart money think about Covenant Transportation Group, Inc. (NASDAQ:CVTI)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVTI over the last 15 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Portolan Capital Management, managed by George McCabe, holds the biggest position in Covenant Transportation Group, Inc. (NASDAQ:CVTI). Portolan Capital Management has a $6.5 million position in the stock, comprising 0.7% of its 13F portfolio. On Portolan Capital Management's heels is Cliff Asness of AQR Capital Management, with a $4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of John Overdeck and David Siegel's Two Sigma Advisors, Noam Gottesman's GLG Partners and D. E. Shaw's D E Shaw.
Seeing as Covenant Transportation Group, Inc. (NASDAQ:CVTI) has faced a decline in interest from hedge fund managers, we can see that there lies a certain "tier" of hedgies that slashed their full holdings in the third quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest investment of all the hedgies followed by Insider Monkey, valued at about $1.9 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund dropped about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Covenant Transportation Group, Inc. (NASDAQ:CVTI) but similarly valued. We will take a look at PCSB Financial Corporation (NASDAQ:PCSB), Unity Biotechnology, Inc. (NASDAQ:UBX), Titan Machinery Inc. (NASDAQ:TITN), and Artesian Resources Corporation (NASDAQ:ARTNA). This group of stocks' market caps match CVTI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PCSB,9,26151,0 UBX,4,9494,2 TITN,12,18228,-3 ARTNA,3,17145,-2 Average,7,17755,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $21 million in CVTI's case. Titan Machinery Inc. (NASDAQ:TITN) is the most popular stock in this table. On the other hand Artesian Resources Corporation (NASDAQ:ARTNA) is the least popular one with only 3 bullish hedge fund positions. Covenant Transportation Group, Inc. (NASDAQ:CVTI) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CVTI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CVTI were disappointed as the stock returned -23% during the same 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.