Hedge Funds Are Souring On Carter’s, Inc. (CRI)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Carter’s, Inc. (NYSE:CRI)? The smart money sentiment can provide an answer to this question.

Carter’s, Inc. (NYSE:CRI) has seen a decrease in enthusiasm from smart money recently. Carter’s, Inc. (NYSE:CRI) was in 21 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 46. There were 27 hedge funds in our database with CRI positions at the end of the first quarter. Our calculations also showed that CRI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 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 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.

Cliff Asness of AQR Capital Management

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 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to review the latest hedge fund action surrounding Carter’s, Inc. (NYSE:CRI).

Do Hedge Funds Think CRI Is A Good Stock To Buy Now?

At second quarter’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CRI over the last 24 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.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bernard Horn’s Polaris Capital Management has the most valuable position in Carter’s, Inc. (NYSE:CRI), worth close to $48.1 million, amounting to 1.6% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $43.8 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of Ken Griffin’s Citadel Investment Group, Ric Dillon’s Diamond Hill Capital and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to Carter’s, Inc. (NYSE:CRI), around 1.55% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, earmarking 0.93 percent of its 13F equity portfolio to CRI.

Because Carter’s, Inc. (NYSE:CRI) has experienced falling interest from hedge fund managers, logic holds that there exists a select few hedgies that slashed their entire stakes in the second quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $15.9 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund sold off about $7.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Carter’s, Inc. (NYSE:CRI) but similarly valued. We will take a look at StemCells Inc (NASDAQ:STEM), John Bean Technologies Corporation (NYSE:JBT), Galapagos NV (NASDAQ:GLPG), Itron, Inc. (NASDAQ:ITRI), fuboTV Inc. (NYSE:FUBO), Xerox Holdings Corporation (NYSE:XRX), and Shake Shack Inc (NYSE:SHAK). All of these stocks’ market caps are closest to CRI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $266 million in CRI’s case. StemCells Inc (NASDAQ:STEM) is the most popular stock in this table. On the other hand Itron, Inc. (NASDAQ:ITRI) is the least popular one with only 16 bullish hedge fund positions. Carter’s, Inc. (NYSE:CRI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CRI is 31.9. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately CRI wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CRI investors were disappointed as the stock returned 0.2% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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