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Was The Smart Money Right About Crowding Into Catalent Inc (CTLT)?

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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Catalent Inc (NYSE:CTLT) changed recently.

Catalent Inc (NYSE:CTLT) was in 35 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CTLT investors should pay attention to an increase in activity from the world's largest hedge funds lately. There were 27 hedge funds in our database with CTLT holdings at the end of March. Our calculations also showed that CTLT 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.

In the eyes of most market participants, hedge funds are perceived as slow, old financial vehicles of yesteryear. While there are over 8000 funds in operation at the moment, Our experts choose to focus on the upper echelon of this group, approximately 850 funds. It is estimated that this group of investors handle the lion's share of the smart money's total asset base, and by shadowing their first-class stock picks, Insider Monkey has come up with a number of investment strategies that have historically beaten Mr. Market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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 we're going to take a look at the fresh hedge fund action encompassing Catalent Inc (NYSE:CTLT).

What have hedge funds been doing with Catalent Inc (NYSE:CTLT)?

At second quarter's end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the first quarter of 2020. On the other hand, there were a total of 20 hedge funds with a bullish position in CTLT a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Catalent Inc (NYSE:CTLT) was held by Viking Global, which reported holding $109.5 million worth of stock at the end of June. It was followed by Millennium Management with a $81.2 million position. Other investors bullish on the company included Suvretta Capital Management, Balyasny Asset Management, and Tower House Partners. In terms of the portfolio weights assigned to each position Tower House Partners allocated the biggest weight to Catalent Inc (NYSE:CTLT), around 17.73% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 5.17 percent of its 13F equity portfolio to CTLT.

As aggregate interest increased, key money managers have jumped into Catalent Inc (NYSE:CTLT) headfirst. Suvretta Capital Management, managed by Aaron Cowen, created the largest position in Catalent Inc (NYSE:CTLT). Suvretta Capital Management had $49.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $7 million investment in the stock during the quarter. The following funds were also among the new CTLT investors: Greg Martinez's Parkman Healthcare Partners, Donald Sussman's Paloma Partners, and Michael Rockefeller and KarláKroeker's Woodline Partners.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Catalent Inc (NYSE:CTLT) but similarly valued. These stocks are NVR, Inc. (NYSE:NVR), HEICO Corporation (NYSE:HEI), Alliant Energy Corporation (NASDAQ:LNT), Extra Space Storage, Inc. (NYSE:EXR), IDEX Corporation (NYSE:IEX), KeyCorp (NYSE:KEY), and POSCO (NYSE:PKX). This group of stocks' market values resemble CTLT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVR,39,939775,5 HEI,46,667415,7 LNT,23,377241,-7 EXR,27,176001,11 IEX,31,575412,-2 KEY,37,212865,-6 PKX,10,49629,-1 Average,30.4,428334,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $490 million in CTLT's case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 10 bullish hedge fund positions. Catalent Inc (NYSE:CTLT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CTLT is 74.7. 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. Hedge funds were also right about betting on CTLT as the stock returned 19.7% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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