“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Central Garden & Pet Company (NASDAQ:CENT) and see how it was affected.
Is Central Garden & Pet Company (NASDAQ:CENT) a healthy stock for your portfolio? The smart money is becoming hopeful. The number of bullish hedge fund positions improved by 3 in recent months. Our calculations also showed that CENT isn’t among the 30 most popular stocks among hedge funds (see the video below). CENT was in 19 hedge funds’ portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with CENT holdings at the end of the previous quarter.
Video: Click the image to 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the key hedge fund action regarding Central Garden & Pet Company (NASDAQ:CENT).
What have hedge funds been doing with Central Garden & Pet Company (NASDAQ:CENT)?
Heading into the third quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the first quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in CENT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Central Garden & Pet Company (NASDAQ:CENT) was held by Renaissance Technologies, which reported holding $23.9 million worth of stock at the end of March. It was followed by CQS Cayman LP with a $19.3 million position. Other investors bullish on the company included Echo Street Capital Management, Renaissance Technologies, and D E Shaw.
As aggregate interest increased, key money managers have jumped into Central Garden & Pet Company (NASDAQ:CENT) headfirst. Polaris Capital Management, managed by Bernard Horn, initiated the most valuable position in Central Garden & Pet Co (NASDAQ:CENT). Polaris Capital Management had $2.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $1.1 million investment in the stock during the quarter. The other funds with brand new CENT positions are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Philippe Laffont’s Coatue Management, and Roger Ibbotson’s Zebra Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Central Garden & Pet Company (NASDAQ:CENT) but similarly valued. We will take a look at BioTelemetry, Inc. (NASDAQ:BEAT), Redfin Corporation (NASDAQ:RDFN), Osisko Gold Royalties Ltd (NYSE:OR), and Matson, Inc. (NYSE:MATX). This group of stocks’ market values match CENT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BEAT | 16 | 38086 | -5 |
| RDFN | 10 | 179010 | 2 |
| OR | 12 | 41963 | 5 |
| MATX | 8 | 5690 | -1 |
| Average | 11.5 | 66187 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $136 million in CENT’s case. BioTelemetry, Inc. (NASDAQ:BEAT) is the most popular stock in this table. On the other hand Matson, Inc. (NYSE:MATX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Central Garden & Pet Company (NASDAQ:CENT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CENT as the stock returned 8.5% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
