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Celestica Inc. (CLS): Are Hedge Funds Right About This Stock?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard since the end of the third quarter. NASDAQ and Russell 2000 indices are already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points in the first half of the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Celestica Inc. (NYSE:CLS).

Celestica Inc. (NYSE:CLS) investors should pay attention to an increase in hedge fund interest of late. Our calculations also showed that CLS isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Let’s take a look at the recent hedge fund action surrounding Celestica Inc. (NYSE:CLS).

How have hedgies been trading Celestica Inc. (NYSE:CLS)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in CLS at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CLS_dec2018

The largest stake in Celestica Inc. (NYSE:CLS) was held by Pzena Investment Management, which reported holding $46.1 million worth of stock at the end of September. It was followed by Hawk Ridge Management with a $36 million position. Other investors bullish on the company included Lakewood Capital Management, Royce & Associates, and Engaged Capital.

As one would reasonably expect, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, established the biggest position in Celestica Inc. (NYSE:CLS). Point72 Asset Management had $1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser’s Magnetar Capital and David Costen Haley’s HBK Investments.

Let’s now review hedge fund activity in other stocks similar to Celestica Inc. (NYSE:CLS). These stocks are Heritage Financial Corporation (NASDAQ:HFWA), Mammoth Energy Services, Inc. (NASDAQ:TUSK), Tactile Systems Technology, Inc. (NASDAQ:TCMD), and Third Point Reinsurance Ltd (NYSE:TPRE). All of these stocks’ market caps are similar to CLS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HFWA 6 71799 -8
TUSK 20 698342 1
TCMD 10 61036 1
TPRE 14 61383 1
Average 12.5 223140 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $196 million in CLS’s case. Mammoth Energy Services, Inc. (NASDAQ:TUSK) is the most popular stock in this table. On the other hand Heritage Financial Corporation (NASDAQ:HFWA) is the least popular one with only 6 bullish hedge fund positions. Celestica Inc. (NYSE:CLS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TUSK might be a better candidate to consider a long position.

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

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