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Carolina Financial Corporation (CARO): Are Hedge Funds Right About This Stock?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Carolina Financial Corporation (NASDAQ:CARO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Northfield Bancorp Inc (Staten Island, NY) (NASDAQ:NFBK), Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX), and TrustCo Bank Corp NY (NASDAQ:TRST) to gather more data points. Our calculations also showed that CARO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Today there are plenty of gauges investors have at their disposal to value publicly traded companies. Some of the best gauges are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite fund managers can outclass the S&P 500 by a very impressive amount (see the details here).

Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the latest hedge fund action encompassing Carolina Financial Corporation (NASDAQ:CARO).

How are hedge funds trading Carolina Financial Corporation (NASDAQ:CARO)?

At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 6 hedge funds held shares or bullish call options in CARO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Mendon Capital Advisors, managed by Anton Schutz, holds the largest position in Carolina Financial Corporation (NASDAQ:CARO). Mendon Capital Advisors has a $21.3 million position in the stock, comprising 3.6% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $18 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish comprise Israel Englander’s Millennium Management, Matthew Lindenbaum’s Basswood Capital and David Harding’s Winton Capital Management. In terms of the portfolio weights assigned to each position Mendon Capital Advisors allocated the biggest weight to Carolina Financial Corporation (NASDAQ:CARO), around 3.6% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, earmarking 0.12 percent of its 13F equity portfolio to CARO.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was D E Shaw).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Carolina Financial Corporation (NASDAQ:CARO) but similarly valued. These stocks are Northfield Bancorp Inc (Staten Island, NY) (NASDAQ:NFBK), Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX), TrustCo Bank Corp NY (NASDAQ:TRST), and Wabash National Corporation (NYSE:WNC). This group of stocks’ market values are closest to CARO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NFBK 8 40560 6
BLX 1 6635 0
TRST 11 43376 -1
WNC 16 58825 1
Average 9 37349 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $48 million in CARO’s case. Wabash National Corporation (NYSE:WNC) is the most popular stock in this table. On the other hand Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX) is the least popular one with only 1 bullish hedge fund positions. Carolina Financial Corporation (NASDAQ:CARO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CARO as the stock returned 19% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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