Colfax Corporation (CFX): Are Hedge Funds Right About This Stock?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Colfax Corporation (NYSE:CFX) changed recently.

Is Colfax Corporation (NYSE:CFX) a healthy stock for your portfolio? The smart money was turning bullish. The number of long hedge fund positions moved up by 7 recently. Colfax Corporation (NYSE:CFX) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 43. Our calculations also showed that CFX 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MOORE GLOBAL INVESTMENTS

Louis Bacon Moore of Moore Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. Now we’re going to take a gander at the recent hedge fund action surrounding Colfax Corporation (NYSE:CFX).

What does smart money think about Colfax Corporation (NYSE:CFX)?

At Q2’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in CFX 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.

Among these funds, Diamond Hill Capital held the most valuable stake in Colfax Corporation (NYSE:CFX), which was worth $105.6 million at the end of the third quarter. On the second spot was Cardinal Capital which amassed $82.8 million worth of shares. Royce & Associates, Citadel Investment Group, and Highbridge Capital Management were 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 Cove Street Capital allocated the biggest weight to Colfax Corporation (NYSE:CFX), around 5.05% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 4.11 percent of its 13F equity portfolio to CFX.

Consequently, some big names were breaking ground themselves. Highbridge Capital Management, founded by Glenn Russell Dubin, established the largest position in Colfax Corporation (NYSE:CFX). Highbridge Capital Management had $32.8 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $25.1 million position during the quarter. The other funds with brand new CFX positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Robert Vincent McHugh’s Jade Capital Advisors, and Louis Bacon’s Moore Global Investments.

Let’s now review hedge fund activity in other stocks similar to Colfax Corporation (NYSE:CFX). We will take a look at Quaker Chemical Corp (NYSE:KWR), OneMain Holdings Inc (NYSE:OMF), Medpace Holdings, Inc. (NASDAQ:MEDP), Murphy USA Inc. (NYSE:MUSA), AutoNation, Inc. (NYSE:AN), Kohl’s Corporation (NYSE:KSS), and Brooks Automation, Inc. (NASDAQ:BRKS). All of these stocks’ market caps are similar to CFX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KWR 13 159316 5
OMF 37 342546 3
MEDP 22 220276 5
MUSA 27 301412 3
AN 29 293932 2
KSS 42 337352 16
BRKS 15 163794 -3
Average 26.4 259804 4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $607 million in CFX’s case. Kohl’s Corporation (NYSE:KSS) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 13 bullish hedge fund positions. Colfax Corporation (NYSE:CFX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CFX is 82. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately CFX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CFX were disappointed as the stock returned -2.5% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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