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Were Hedge Funds Right About Piling Into Carlisle Companies, Inc. (CSL)?

Reymerlyn Martin
·6 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Carlisle Companies, Inc. (NYSE:CSL) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Carlisle Companies, Inc. (NYSE:CSL) investors should pay attention to an increase in hedge fund sentiment lately. Carlisle Companies, Inc. (NYSE:CSL) was in 38 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 23 hedge funds in our database with CSL holdings at the end of March. Our calculations also showed that CSL 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.

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

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 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 go over the new hedge fund action regarding Carlisle Companies, Inc. (NYSE:CSL).

Hedge fund activity in Carlisle Companies, Inc. (NYSE:CSL)

Heading into the third quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 65% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CSL over the last 20 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Millennium Management was the largest shareholder of Carlisle Companies, Inc. (NYSE:CSL), with a stake worth $70.3 million reported as of the end of June. Trailing Millennium Management was AQR Capital Management, which amassed a stake valued at $41.3 million. Lodge Hill Capital, Citadel Investment Group, and Two Sigma Advisors 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 Lodge Hill Capital allocated the biggest weight to Carlisle Companies, Inc. (NYSE:CSL), around 9.35% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, designating 4.98 percent of its 13F equity portfolio to CSL.

Now, key money managers were breaking ground themselves. Cloverdale Capital Management, managed by C. Jonathan Gattman, assembled the most outsized position in Carlisle Companies, Inc. (NYSE:CSL). Cloverdale Capital Management had $6.7 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $5.3 million position during the quarter. The other funds with new positions in the stock are Schonfeld Strategic Advisors, Seth Cogswell's Running Oak Capital, and Paul Marshall and Ian Wace's Marshall Wace LLP.

Let's now review hedge fund activity in other stocks similar to Carlisle Companies, Inc. (NYSE:CSL). We will take a look at The Boston Beer Company Inc (NYSE:SAM), Lear Corporation (NYSE:LEA), Bausch Health Companies (NYSE:BHC), Kingsoft Cloud Holdings Limited (NASDAQ:KC), Repligen Corporation (NASDAQ:RGEN), GrubHub Inc (NYSE:GRUB), and Federal Realty Investment Trust (NYSE:FRT). All of these stocks' market caps match CSL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAM,32,804033,8 LEA,41,896134,13 BHC,35,1745572,0 KC,20,62450,20 RGEN,34,688852,13 GRUB,52,1080219,20 FRT,20,76045,-4 Average,33.4,764758,10 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $765 million. That figure was $339 million in CSL's case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand Kingsoft Cloud Holdings Limited (NASDAQ:KC) is the least popular one with only 20 bullish hedge fund positions. Carlisle Companies, Inc. (NYSE:CSL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSL is 68.1. 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. 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 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 beat the market again by 20.1 percentage points. Unfortunately CSL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CSL were disappointed as the stock returned 3.9% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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