How do you pick the next stock to invest in? One way would be to spend hours 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 Ceridian HCM Holding Inc. (NYSE:CDAY).
Is Ceridian HCM Holding Inc. (NYSE:CDAY) a buy, sell, or hold? Hedge funds are reducing their bets on the stock. The number of bullish hedge fund bets shrunk by 2 in recent months. Our calculations also showed that CDAY isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a gander at the latest hedge fund action regarding Ceridian HCM Holding Inc. (NYSE:CDAY).
What have hedge funds been doing with Ceridian HCM Holding Inc. (NYSE:CDAY)?
Heading into the fourth quarter of 2018, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CDAY over the last 13 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.
When looking at the institutional investors followed by Insider Monkey, Whale Rock Capital Management, managed by Alex Sacerdote, holds the largest position in Ceridian HCM Holding Inc. (NYSE:CDAY). Whale Rock Capital Management has a $143.6 million position in the stock, comprising 3.2% of its 13F portfolio. The second most bullish fund manager is Select Equity Group, managed by Robert Joseph Caruso, which holds a $63.5 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass Jacob Doft’s Highline Capital Management, Nehal Chopra’s Ratan Capital Group and Ken Griffin’s Citadel Investment Group.
Judging by the fact that Ceridian HCM Holding Inc. (NYSE:CDAY) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there is a sect of hedgies who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Leon Cooperman’s Omega Advisors said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $9.7 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund dumped about $6.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Ceridian HCM Holding Inc. (NYSE:CDAY). We will take a look at DCP Midstream LP (NYSE:DCP), GrafTech International Ltd. (NYSE:EAF), Gates Industrial Corporation plc (NYSE:GTES), and American Campus Communities, Inc. (NYSE:ACC). This group of stocks’ market valuations match CDAY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DCP | 5 | 17689 | 0 |
| EAF | 31 | 350715 | 12 |
| GTES | 9 | 21656 | 0 |
| ACC | 17 | 279758 | -2 |
| Average | 15.5 | 167455 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $345 million in CDAY’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 5 bullish hedge fund positions. Ceridian HCM Holding Inc. (NYSE:CDAY) 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 EAF might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
