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2019 Review: Most Favored Hedge Fund Stocks vs. Colfax Corporation (CFX)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Colfax Corporation (NYSE:CFX) based on that data.

Colfax Corporation (NYSE:CFX) investors should pay attention to an increase in hedge fund sentiment in recent months. CFX was in 30 hedge funds’ portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with CFX positions at the end of the previous quarter. Our calculations also showed that CFX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

To the average investor there are many tools investors can use to size up stocks. A pair of the most underrated tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best hedge fund managers can outperform the S&P 500 by a solid margin (see the details here).

Dan Loeb THIRD POINT

Dan Loeb of Third Point

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to check out the new hedge fund action surrounding Colfax Corporation (NYSE:CFX).

How have hedgies been trading Colfax Corporation (NYSE:CFX)?

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CFX over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cardinal Capital, managed by Amy Minella, holds the largest position in Colfax Corporation (NYSE:CFX). Cardinal Capital has a $92.1 million position in the stock, comprising 3% of its 13F portfolio. The second most bullish fund manager is Diamond Hill Capital, led by Ric Dillon, holding a $84.1 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions include Chuck Royce’s Royce & Associates, Dan Loeb’s Third Point and Charles Davidson and Joseph Jacobs’s Wexford Capital. In terms of the portfolio weights assigned to each position Wexford Capital allocated the biggest weight to Colfax Corporation (NYSE:CFX), around 6.71% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 5.03 percent of its 13F equity portfolio to CFX.

As industrywide interest jumped, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in Colfax Corporation (NYSE:CFX). Point72 Asset Management had $12 million invested in the company at the end of the quarter. Michael Hintze’s CQS Cayman LP also made a $9.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Benjamin A. Smith’s Laurion Capital Management, and David Harding’s Winton Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Colfax Corporation (NYSE:CFX). These stocks are Macquarie Infrastructure Corporation (NYSE:MIC), The Descartes Systems Group Inc (NASDAQ:DSGX), Axon Enterprise, Inc. (NASDAQ:AAXN), and Tegna Inc (NYSE:TGNA). This group of stocks’ market valuations match CFX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MIC 26 231644 -2
DSGX 14 126013 3
AAXN 14 209400 -2
TGNA 18 359437 3
Average 18 231624 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $653 million in CFX’s case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand The Descartes Systems Group Inc (NASDAQ:DSGX) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Colfax Corporation (NYSE:CFX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on CFX as the stock returned 72.2% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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