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 CTO Realty Growth Inc (NYSE:CTO) and determine whether hedge funds had an edge regarding this stock.
CTO Realty Growth Inc (NYSE:CTO) shareholders have witnessed a decrease in hedge fund sentiment lately. CTO was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with CTO holdings at the end of the previous quarter. Our calculations also showed that CTO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Martin Whitman of Third Avenue Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the recent hedge fund action surrounding CTO Realty Growth Inc (NYSE:CTO).
What have hedge funds been doing with CTO Realty Growth Inc (NYSE:CTO)?
Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CTO over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Carlson Capital was the largest shareholder of CTO Realty Growth Inc (NYSE:CTO), with a stake worth $7.4 million reported as of the end of September. Trailing Carlson Capital was Magnetar Capital, which amassed a stake valued at $3.4 million. Intrepid Capital Management, Renaissance Technologies, and Elkhorn 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 Intrepid Capital Management allocated the biggest weight to CTO Realty Growth Inc (NYSE:CTO), around 2.33% of its 13F portfolio. Elkhorn Partners is also relatively very bullish on the stock, dishing out 1.53 percent of its 13F equity portfolio to CTO.
Judging by the fact that CTO Realty Growth Inc (NYSE:CTO) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds that slashed their positions entirely in the first quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group dumped the largest investment of the 750 funds monitored by Insider Monkey, totaling close to $20.7 million in stock. J. Alan Reid, Jr.’s fund, Forward Management, also said goodbye to its stock, about $13 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds in the first quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CTO Realty Growth Inc (NYSE:CTO) but similarly valued. These stocks are Wins Finance Holdings Inc. (NASDAQ:WINS), MannKind Corporation (NASDAQ:MNKD), Southern Missouri Bancorp, Inc. (NASDAQ:SMBC), and DXP Enterprises Inc (NASDAQ:DXPE). This group of stocks’ market valuations are closest to CTO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WINS | 1 | 196 | 0 |
| MNKD | 5 | 2540 | -4 |
| SMBC | 3 | 10924 | -1 |
| DXPE | 7 | 25787 | -2 |
| Average | 4 | 9862 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $23 million in CTO’s case. DXP Enterprises Inc (NASDAQ:DXPE) is the most popular stock in this table. On the other hand Wins Finance Holdings Inc. (NASDAQ:WINS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks CTO Realty Growth Inc (NYSE:CTO) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately CTO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CTO were disappointed as the stock returned -12.3% during the second quarter 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 most of these stocks already outperformed the market in 2020.
Follow Cto Realty Growth Inc. (NYSE:CTO)
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Disclosure: None. This article was originally published at Insider Monkey.
