Hedge Funds Are Crazy About Colfax Corp (CFX)

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Colfax Corp (NYSE:CFX) a buy, sell, or hold? The smart money is becoming more confident. The number of long hedge fund positions advanced by 10 in recent months. CFX was in 28 hedge funds’ portfolios at the end of the third quarter of 2016. There were 18 hedge funds in our database with CFX positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Cedar Fair, L.P. (NYSE:FUN), Telephone & Data Systems, Inc. (NYSE:TDS), and Blackbaud, Inc. (NASDAQ:BLKB) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How have hedgies been trading Colfax Corp (NYSE:CFX)?

Heading into the fourth quarter of 2016, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a 56% jump from the previous quarter, pushing ownership of the stock among hedgies to its highest level in five quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Akre Capital Management, managed by Charles Akre, holds the number one position in Colfax Corp (NYSE:CFX). Akre Capital Management has a $191.7 million position in the stock, comprising 3.7% of its 13F portfolio. Coming in second is Jonathan Auerbach of Hound Partners, with a $144.1 million position; 3.9% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions comprise Ric Dillon’s Diamond Hill Capital, Brian Bares’ Bares Capital Management and Wallace Weitz’s Wallace R. Weitz & Co..

Now, specific money managers have been driving this bullishness. Lodge Hill Capital, managed by Clint Murray, initiated the most outsized position in Colfax Corp (NYSE:CFX). Lodge Hill Capital had $34.6 million invested in the company at the end of the quarter. Jeffrey Bronchick’s Cove Street Capital also made a $21.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Michael Platt and William Reeves’ BlueCrest Capital Mgmt..

Let’s now review hedge fund activity in other stocks similar to Colfax Corp (NYSE:CFX). We will take a look at Cedar Fair, L.P. (NYSE:FUN), Telephone & Data Systems, Inc. (NYSE:TDS), Blackbaud, Inc. (NASDAQ:BLKB), and Eldorado Gold Corp (USA) (NYSE:EGO). This group of stocks’ market values are similar to CFX’s market value.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $931 million in CFX’s case. Telephone & Data Systems, Inc. (NYSE:TDS) is the most popular stock in this table. On the other hand Cedar Fair, L.P. (NYSE:FUN) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Colfax Corp (NYSE:CFX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and ownership of it just soared, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None