In this article we will check out the progression of hedge fund sentiment towards Central Securities Corporation (NYSE:CET) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Central Securities Corporation (NYSE:CET) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of the first quarter of 2021. Our calculations also showed that CET isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare CET to other stocks including Enanta Pharmaceuticals Inc (NASDAQ:ENTA), Turning Point Brands, Inc. (NYSE:TPB), and Ebix Inc (NASDAQ:EBIX) to get a better sense of its popularity.
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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Phillip Goldstein of Bulldog Investors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. Now we’re going to take a look at the new hedge fund action surrounding Central Securities Corporation (NYSE:CET).
Do Hedge Funds Think CET Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CET over the last 23 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Bulldog Investors held the most valuable stake in Central Securities Corporation (NYSE:CET), which was worth $14.4 million at the end of the fourth quarter. On the second spot was Third Avenue Management which amassed $4.2 million worth of shares. Clough Capital Partners was 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 Bulldog Investors allocated the biggest weight to Central Securities Corporation (NYSE:CET), around 4.24% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, dishing out 0.56 percent of its 13F equity portfolio to CET.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now take a look at hedge fund activity in other stocks similar to Central Securities Corporation (NYSE:CET). We will take a look at Enanta Pharmaceuticals Inc (NASDAQ:ENTA), Turning Point Brands, Inc. (NYSE:TPB), Ebix Inc (NASDAQ:EBIX), OneSpan Inc. (NASDAQ:OSPN), Phibro Animal Health Corp (NASDAQ:PAHC), Formula One Group (NASDAQ:FWONA), and Apria, Inc. (NASDAQ:APR). This group of stocks’ market values are closest to CET’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENTA | 14 | 242215 | -3 |
| TPB | 25 | 185125 | 3 |
| EBIX | 8 | 15424 | -6 |
| OSPN | 15 | 160435 | -2 |
| PAHC | 10 | 48834 | -4 |
| FWONA | 19 | 235249 | -2 |
| APR | 11 | 78178 | 11 |
| Average | 14.6 | 137923 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $20 million in CET’s case. Turning Point Brands, Inc. (NYSE:TPB) is the most popular stock in this table. On the other hand Ebix Inc (NASDAQ:EBIX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Central Securities Corporation (NYSE:CET) is even less popular than EBIX. Our overall hedge fund sentiment score for CET is 35. 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. Hedge funds clearly dropped the ball on CET as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on CET as the stock returned 11.1% since Q1 (through June 11th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.