How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding CBIZ, Inc. (NYSE:CBZ).
Is CBIZ, Inc. (NYSE:CBZ) a buy, sell, or hold? The smart money is becoming less confident. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that CBZ isn’t among the 30 most popular stocks among hedge funds (see the video below). CBZ was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with CBZ 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let’s review the new hedge fund action regarding CBIZ, Inc. (NYSE:CBZ).
How are hedge funds trading CBIZ, Inc. (NYSE:CBZ)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CBZ over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in CBIZ, Inc. (NYSE:CBZ) was held by Cardinal Capital, which reported holding $61.3 million worth of stock at the end of March. It was followed by P2 Capital Partners with a $52.8 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and AQR Capital Management.
Since CBIZ, Inc. (NYSE:CBZ) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds who were dropping their entire stakes by the end of the second quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital said goodbye to the largest investment of all the hedgies watched by Insider Monkey, valued at close to $0.3 million in stock. Bruce Kovner’s fund, Caxton Associates LP, also cut its stock, about $0.2 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CBIZ, Inc. (NYSE:CBZ) but similarly valued. These stocks are Hess Midstream Partners LP (NYSE:HESM), Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC), Golub Capital BDC Inc (NASDAQ:GBDC), and BrightSphere Investment Group Inc. (NYSE:BSIG). This group of stocks’ market caps are similar to CBZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HESM | 6 | 9398 | 0 |
| TRHC | 7 | 33253 | 0 |
| GBDC | 8 | 38976 | 0 |
| BSIG | 19 | 325677 | -2 |
| Average | 10 | 101826 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $150 million in CBZ’s case. BrightSphere Investment Group Inc. (NYSE:BSIG) is the most popular stock in this table. On the other hand Hess Midstream Partners LP (NYSE:HESM) is the least popular one with only 6 bullish hedge fund positions. CBIZ, Inc. (NYSE:CBZ) is not the most popular stock in this group but hedge fund interest is still above average. 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 CBZ as the stock returned 20% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
