Hedge Funds Continue Betting On Cantel Medical Corp. (CMD)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Cantel Medical Corp. (NYSE:CMD) and determine whether hedge funds skillfully traded this stock.

Is Cantel Medical Corp. (NYSE:CMD) a healthy stock for your portfolio? The smart money was getting more optimistic. The number of long hedge fund positions advanced by 2 lately. Cantel Medical Corp. (NYSE:CMD) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 23. Our calculations also showed that CMD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by 58 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.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s take a look at the fresh hedge fund action surrounding Cantel Medical Corp. (NYSE:CMD).

What have hedge funds been doing with Cantel Medical Corp. (NYSE:CMD)?

At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the first quarter of 2020. By comparison, 11 hedge funds held shares or bullish call options in CMD a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Cantel Medical Corp. (NYSE:CMD) was held by Leonard Green & Partners, which reported holding $88.5 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $7.6 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Leonard Green & Partners allocated the biggest weight to Cantel Medical Corp. (NYSE:CMD), around 16.49% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to CMD.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Leonard Green & Partners, managed by Leonard Green, assembled the most outsized position in Cantel Medical Corp. (NYSE:CMD). Leonard Green & Partners had $88.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $7.6 million position during the quarter. The following funds were also among the new CMD investors: Ira Unschuld’s Brant Point Investment Management, Bart Baum’s Ionic Capital Management, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s also examine hedge fund activity in other stocks similar to Cantel Medical Corp. (NYSE:CMD). We will take a look at Revolution Medicines, Inc. (NASDAQ:RVMD), IAMGOLD Corporation (NYSE:IAG), Brandywine Realty Trust (NYSE:BDN), Myovant Sciences Ltd. (NYSE:MYOV), Chimera Investment Corporation (NYSE:CIM), NetScout Systems, Inc. (NASDAQ:NTCT), and Xencor Inc (NASDAQ:XNCR). This group of stocks’ market values match CMD’s market value.

View table here if you experience formatting issues.

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 $160 million. That figure was $135 million in CMD’s case. Xencor Inc (NASDAQ:XNCR) is the most popular stock in this table. On the other hand Brandywine Realty Trust (NYSE:BDN) is the least popular one with only 12 bullish hedge fund positions. Cantel Medical Corp. (NYSE:CMD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CMD is 81.8. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately CMD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CMD were disappointed as the stock returned -0.7% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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