Was The Smart Money Right About Carrier Global Corporation (CARR)?

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 Carrier Global Corporation (NYSE:CARR) and determine whether hedge funds had an edge regarding this stock.

Hedge fund interest in Carrier Global Corporation (NYSE:CARR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CARR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare CARR to other stocks including The Bank of New York Mellon Corporation (NYSE:BK), T. Rowe Price Group, Inc. (NASDAQ:TROW), and Kimberly Clark Corporation (NYSE:KMB) to get a better sense of its popularity.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to review the key hedge fund action surrounding Carrier Global Corporation (NYSE:CARR).

Jeffrey Gates of Gates CapitalJeffrey Gates

Do Hedge Funds Think CARR Is A Good Stock To Buy Now?

At the end of September, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 49 hedge funds held shares or bullish call options in CARR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Carrier Global Corporation (NYSE:CARR), with a stake worth $183.1 million reported as of the end of September. Trailing AQR Capital Management was Gates Capital Management, which amassed a stake valued at $165.8 million. Renaissance Technologies, D E Shaw, and Fisher Asset Management 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 Voleon Capital allocated the biggest weight to Carrier Global Corporation (NYSE:CARR), around 28.19% of its 13F portfolio. DSAM Partners is also relatively very bullish on the stock, setting aside 5.9 percent of its 13F equity portfolio to CARR.

Judging by the fact that Carrier Global Corporation (NYSE:CARR) has witnessed declining sentiment from the smart money, logic holds that there were a few funds that slashed their entire stakes by the end of the third quarter. Intriguingly, Matthew Stadelman’s Diamond Hill Capital cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $275.1 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $125.5 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Carrier Global Corporation (NYSE:CARR). We will take a look at The Bank of New York Mellon Corporation (NYSE:BK), T. Rowe Price Group, Inc. (NASDAQ:TROW), Kimberly Clark Corporation (NYSE:KMB), L3Harris Technologies, Inc. (NYSE:LHX), Veeva Systems Inc (NYSE:VEEV), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and Datadog, Inc. (NASDAQ:DDOG). This group of stocks’ market valuations resemble CARR’s market valuation.

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As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $1844 million. That figure was $1325 million in CARR’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 10 bullish hedge fund positions. Carrier Global Corporation (NYSE:CARR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CARR is 66.2. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, CARR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CARR were disappointed as the stock returned -7.4% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.