The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Compass Minerals International, Inc. (NYSE:CMP) from the perspective of those elite funds.
Is Compass Minerals International, Inc. (NYSE:CMP) worth your attention right now? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund bets increased by 1 lately. Our calculations also showed that CMP isn’t among the 30 most popular stocks among hedge funds. CMP was in 12 hedge funds’ portfolios at the end of December. There were 11 hedge funds in our database with CMP positions at the end of the previous quarter.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s review the new hedge fund action encompassing Compass Minerals International, Inc. (NYSE:CMP).
Hedge fund activity in Compass Minerals International, Inc. (NYSE:CMP)
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in CMP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Cove Street Capital was the largest shareholder of Compass Minerals International, Inc. (NYSE:CMP), with a stake worth $38.7 million reported as of the end of December. Trailing Cove Street Capital was Southpoint Capital Advisors, which amassed a stake valued at $26.3 million. Lodge Hill Capital, Wallace R. Weitz & Co., and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the most outsized call position in Compass Minerals International, Inc. (NYSE:CMP). Point72 Asset Management had $3.7 million invested in the company at the end of the quarter. Joseph A. Jolson’s Harvest Capital Strategies also made a $3.1 million investment in the stock during the quarter. The following funds were also among the new CMP investors: Steve Cohen’s Point72 Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Noam Gottesman’s GLG Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Compass Minerals International, Inc. (NYSE:CMP) but similarly valued. We will take a look at STAAR Surgical Company (NASDAQ:STAA), Alamos Gold Inc (NYSE:AGI), Adient plc (NYSE:ADNT), and Fanhua Inc. (NASDAQ:FANH). This group of stocks’ market valuations are similar to CMP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STAA | 20 | 598030 | -4 |
| AGI | 11 | 71999 | 1 |
| ADNT | 27 | 287226 | -2 |
| FANH | 9 | 13664 | 5 |
| Average | 16.75 | 242730 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $97 million in CMP’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 9 bullish hedge fund positions. Compass Minerals International, Inc. (NYSE:CMP) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on CMP as the stock returned 35.5% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
