Was The Smart Money Right About Charles River Laboratories International Inc. (CRL)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Charles River Laboratories International Inc. (NYSE:CRL).

Charles River Laboratories International Inc. (NYSE:CRL) was in 44 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 43. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CRL investors should be aware of an increase in hedge fund interest recently. There were 42 hedge funds in our database with CRL positions at the end of the first quarter. Our calculations also showed that CRL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

John Rogers of Ariel Investments

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 are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to analyze the key hedge fund action surrounding Charles River Laboratories International Inc. (NYSE:CRL).

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

At the end of June, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. By comparison, 41 hedge funds held shares or bullish call options in CRL a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Charles River Laboratories International Inc. (NYSE:CRL) was held by Viking Global, which reported holding $130.2 million worth of stock at the end of June. It was followed by Marshall Wace LLP with a $104.6 million position. Other investors bullish on the company included Citadel Investment Group, Fisher Asset Management, and Ariel Investments. In terms of the portfolio weights assigned to each position Tower House Partners allocated the biggest weight to Charles River Laboratories International Inc. (NYSE:CRL), around 23.73% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 5.64 percent of its 13F equity portfolio to CRL.

As aggregate interest increased, some big names were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, created the most outsized position in Charles River Laboratories International Inc. (NYSE:CRL). Alyeska Investment Group had $22.6 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also initiated a $20.5 million position during the quarter. The following funds were also among the new CRL investors: Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Louis Navellier’s Navellier & Associates, and Andrew Weiss’s Weiss Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Charles River Laboratories International Inc. (NYSE:CRL) but similarly valued. We will take a look at Warner Music Group Corp. (NASDAQ:WMG), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Incyte Corporation (NASDAQ:INCY), Ally Financial Inc (NYSE:ALLY), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Tyler Technologies, Inc. (NYSE:TYL), and Catalent Inc (NYSE:CTLT). All of these stocks’ market caps resemble CRL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.9 hedge funds with bullish positions and the average amount invested in these stocks was $1582 million. That figure was $1218 million in CRL’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 5 bullish hedge fund positions. Charles River Laboratories International Inc. (NYSE:CRL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CRL is 76.8. 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 through November 5th and beat the market again by 3.1 percentage points. Unfortunately CRL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CRL were disappointed as the stock returned 1.4% since the end of June (through 11/5) 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 many of these stocks already outperformed the market since 2019.

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