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Covenant Transportation Group, Inc. (CVTI): Hedge Funds In Wait-and-See Mode

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Covenant Transportation Group, Inc. (NASDAQ:CVTI).

Covenant Transportation Group, Inc. (NASDAQ:CVTI) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare CVTI to other stocks including Parke Bancorp, Inc. (NASDAQ:PKBK), Blue Apron Holdings, Inc. (NYSE:APRN), and BiomX Inc. (NYSE:PHGE) to get a better sense of its popularity.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the new hedge fund action regarding Covenant Transportation Group, Inc. (NASDAQ:CVTI).

What have hedge funds been doing with Covenant Transportation Group, Inc. (NASDAQ:CVTI)?

Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in CVTI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Scopus Asset Management, managed by Alexander Mitchell, holds the biggest position in Covenant Transportation Group, Inc. (NASDAQ:CVTI). Scopus Asset Management has a $2.3 million position in the stock, comprising 0.2% of its 13F portfolio. On Scopus Asset Management’s heels is D E Shaw, managed by D. E. Shaw, which holds a $1.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish include John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Scopus Asset Management allocated the biggest weight to Covenant Transportation Group, Inc. (NASDAQ:CVTI), around 0.19% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to CVTI.

Because Covenant Transportation Group, Inc. (NASDAQ:CVTI) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers who were dropping their positions entirely in the first quarter. At the top of the heap, David Harding’s Winton Capital Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, totaling about $0.6 million in stock. Renaissance Technologies, also said goodbye to its stock, about $0.6 million worth. These bearish behaviors 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 similar to Covenant Transportation Group, Inc. (NASDAQ:CVTI). We will take a look at Parke Bancorp, Inc. (NASDAQ:PKBK), Blue Apron Holdings, Inc. (NYSE:APRN), BiomX Inc. (NYSE:PHGE), and RedHill Biopharma Ltd (NASDAQ:RDHL). This group of stocks’ market caps match CVTI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PKBK 4 9977 1
APRN 10 24852 1
PHGE 8 18324 0
RDHL 2 652 -1
Average 6 13451 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $7 million in CVTI’s case. Blue Apron Holdings, Inc. (NYSE:APRN) is the most popular stock in this table. On the other hand RedHill Biopharma Ltd (NASDAQ:RDHL) is the least popular one with only 2 bullish hedge fund positions. Covenant Transportation Group, Inc. (NASDAQ:CVTI) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on CVTI as the stock returned 49.7% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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