We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
CSI Compressco LP (NASDAQ:CCLP) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that CCLP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Joe Huber of Huber Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s view the key hedge fund action surrounding CSI Compressco LP (NASDAQ:CCLP).
What have hedge funds been doing with CSI Compressco LP (NASDAQ:CCLP)?
At Q3’s end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in CCLP a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Huber Capital Management held the most valuable stake in CSI Compressco LP (NASDAQ:CCLP), which was worth $1.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $0.1 million worth of shares. Renaissance Technologies was 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 Huber Capital Management allocated the biggest weight to CSI Compressco LP (NASDAQ:CCLP), around 0.21% of its 13F portfolio. Citadel Investment Group is also relatively very bullish on the stock, setting aside 0.0001 percent of its 13F equity portfolio to CCLP.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CCLP as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as CSI Compressco LP (NASDAQ:CCLP) but similarly valued. These stocks are Universal Technical Institute, Inc. (NYSE:UTI), Danaos Corporation (NYSE:DAC), Mohawk Group Holdings, Inc. (NASDAQ:MWK), and Capital Senior Living Corporation (NYSE:CSU). This group of stocks’ market values are closest to CCLP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UTI | 7 | 42341 | 2 |
| DAC | 1 | 554 | 0 |
| MWK | 3 | 4832 | 0 |
| CSU | 10 | 52380 | -4 |
| Average | 5.25 | 25027 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $2 million in CCLP’s case. Capital Senior Living Corporation (NYSE:CSU) is the most popular stock in this table. On the other hand Danaos Corporation (NYSE:DAC) is the least popular one with only 1 bullish hedge fund positions. CSI Compressco LP (NASDAQ:CCLP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CCLP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CCLP investors were disappointed as the stock returned -17.3% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.