Is Central Pacific Financial Corp. (CPF) Going to Burn Investors?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Central Pacific Financial Corp. (NYSE:CPF).

Central Pacific Financial Corp. (NYSE:CPF) was in 11 hedge funds’ portfolios at the end of September. CPF shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 12 hedge funds in our database with CPF positions at the end of June. At the end of this article we will also compare CPF to other stocks including Lattice Semiconductor (NASDAQ:LSCC), MedEquities Realty Trust Inc (NYSE:MRT), and Northfield Bancorp Inc (NASDAQ:NFBK) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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How have hedgies been trading Central Pacific Financial Corp. (NYSE:CPF)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, an 8% decline from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in CPF a year earlier, which has steadily fallen since. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the top position in Central Pacific Financial Corp. (NYSE:CPF), worth close to $22.4 million. On Renaissance Technologies’ heels is Millennium Management, founded by Israel Englander, holding an $11.8 million position. Some other peers that hold long positions contain Cliff Asness’ AQR Capital Management, John D. Gillespie’s Prospector Partners, and Ken Fisher’s Fisher Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

Judging by the fact that Central Pacific Financial Corp. (NYSE:CPF) has gone through bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few fund managers that slashed their full holdings heading into Q4. At the top of the heap, Paul Tudor Jones’ Tudor Investment Corp dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $0.3 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund said goodbye to about $0.1 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to Central Pacific Financial Corp. (NYSE:CPF). These stocks are Lattice Semiconductor (NASDAQ:LSCC), MedEquities Realty Trust Inc (NYSE:MRT), Northfield Bancorp Inc (NASDAQ:NFBK), and Walker & Dunlop Inc. (NYSE:WD). This group of stocks’ market values are closest to CPF’s market value.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $55 million in CPF’s case. MedEquities Realty Trust Inc (NYSE:MRT) is the most popular stock in this table. On the other hand Northfield Bancorp Inc (NASDAQ:NFBK) is the least popular one with only 5 bullish hedge fund positions. Central Pacific Financial Corp. (NYSE:CPF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MRT might be a better candidate to consider taking a long position in.

Disclosure: None