Casey’s General Stores, Inc. (CASY): Hedge Funds In Wait-and-See Mode

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 Casey’s General Stores, Inc. (NASDAQ:CASY) and determine whether hedge funds had an edge regarding this stock.

Casey’s General Stores, Inc. (NASDAQ:CASY) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds’ portfolios at the end of June. Our calculations also showed that CASY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 LHC Group, Inc. (NASDAQ:LHCG), Prosperity Bancshares, Inc. (NYSE:PB), and Legend Biotech Corporation (NASDAQ:LEGN) to gather more data points. Our calculations also showed that CASY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to view the recent hedge fund action surrounding Casey’s General Stores, Inc. (NASDAQ:CASY).

Hedge fund activity in Casey’s General Stores, Inc. (NASDAQ:CASY)

At second quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in CASY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Casey’s General Stores, Inc. (NASDAQ:CASY) was held by AQR Capital Management, which reported holding $38.5 million worth of stock at the end of September. It was followed by York Capital Management with a $32.4 million position. Other investors bullish on the company included Citadel Investment Group, Rip Road Capital, and GLG Partners. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to Casey’s General Stores, Inc. (NASDAQ:CASY), around 4.9% of its 13F portfolio. Southport Management is also relatively very bullish on the stock, earmarking 2.8 percent of its 13F equity portfolio to CASY.

Since Casey’s General Stores, Inc. (NASDAQ:CASY) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds who were dropping their full holdings last quarter. At the top of the heap, David Gallo’s Valinor Management LLC said goodbye to the biggest position of all the hedgies followed by Insider Monkey, worth about $44.5 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $8.2 million worth. These moves are important to note, 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 – not necessarily in the same industry as Casey’s General Stores, Inc. (NASDAQ:CASY) but similarly valued. These stocks are LHC Group, Inc. (NASDAQ:LHCG), Prosperity Bancshares, Inc. (NYSE:PB), Legend Biotech Corporation (NASDAQ:LEGN), Deckers Outdoor Corp (NYSE:DECK), Steel Dynamics, Inc. (NASDAQ:STLD), CACI International Inc (NYSE:CACI), and Pearson PLC (NYSE:PSO). This group of stocks’ market valuations are similar to CASY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LHCG 30 159342 3
PB 27 109165 11
LEGN 28 551006 28
DECK 47 857767 16
STLD 30 370392 3
CACI 34 395916 9
PSO 7 14870 -1
Average 29 351208 9.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $152 million in CASY’s case. Deckers Outdoor Corp (NYSE:DECK) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 7 bullish hedge fund positions. Casey’s General Stores, Inc. (NASDAQ:CASY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CASY is 49.6. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on CASY as the stock returned 19.1% in the third quarter and outperformed the market by an even larger margin.

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