How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Catalent Inc (NYSE:CTLT) and determine whether hedge funds had an edge regarding this stock.
Catalent Inc (NYSE:CTLT) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CTLT has experienced an increase in hedge fund sentiment recently. There were 27 hedge funds in our database with CTLT holdings at the end of March. Our calculations also showed that CTLT 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Aaron Cowen of Suvretta Capital 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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s take a look at the recent hedge fund action encompassing Catalent Inc (NYSE:CTLT).
How are hedge funds trading Catalent Inc (NYSE:CTLT)?
Heading into the third quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CTLT over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Viking Global held the most valuable stake in Catalent Inc (NYSE:CTLT), which was worth $109.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $81.2 million worth of shares. Suvretta Capital Management, Balyasny Asset Management, and Tower House Partners were 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 Tower House Partners allocated the biggest weight to Catalent Inc (NYSE:CTLT), around 17.73% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, designating 5.17 percent of its 13F equity portfolio to CTLT.
Now, some big names have jumped into Catalent Inc (NYSE:CTLT) headfirst. Suvretta Capital Management, managed by Aaron Cowen, assembled the most valuable position in Catalent Inc (NYSE:CTLT). Suvretta Capital Management had $49.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $7 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Martinez’s Parkman Healthcare Partners, Donald Sussman’s Paloma Partners, and Michael Rockefeller and KarláKroeker’s Woodline Partners.
Let’s check out hedge fund activity in other stocks similar to Catalent Inc (NYSE:CTLT). These stocks are NVR, Inc. (NYSE:NVR), HEICO Corporation (NYSE:HEI), Alliant Energy Corporation (NYSE:LNT), Extra Space Storage, Inc. (NYSE:EXR), IDEX Corporation (NYSE:IEX), KeyCorp (NYSE:KEY), and POSCO (NYSE:PKX). This group of stocks’ market valuations match CTLT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVR | 39 | 939775 | 5 |
| HEI | 46 | 667415 | 7 |
| LNT | 23 | 377241 | -7 |
| EXR | 27 | 176001 | 11 |
| IEX | 31 | 575412 | -2 |
| KEY | 37 | 212865 | -6 |
| PKX | 10 | 49629 | -1 |
| Average | 30.4 | 428334 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $490 million in CTLT’s case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 10 bullish hedge fund positions. Catalent Inc (NYSE:CTLT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CTLT is 74.7. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on CTLT as the stock returned 26.2% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Catalent Inc. (NYSE:CTLT)
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Disclosure: None. This article was originally published at Insider Monkey.
