Did Hedge Funds Drop The Ball On Carbon Black, Inc. (CBLK) ?

Is Carbon Black, Inc. (NASDAQ:CBLK) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Carbon Black, Inc. (NASDAQ:CBLK) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. CBLK was in 17 hedge funds’ portfolios at the end of June. There were 19 hedge funds in our database with CBLK holdings at the end of the previous quarter. Our calculations also showed that CBLK isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Glen Kacher Light Street

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the key hedge fund action encompassing Carbon Black, Inc. (NASDAQ:CBLK).

How are hedge funds trading Carbon Black, Inc. (NASDAQ:CBLK)?

At Q2’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CBLK over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).


Among these funds, Light Street Capital held the most valuable stake in Carbon Black, Inc. (NASDAQ:CBLK), which was worth $62.3 million at the end of the second quarter. On the second spot was Portolan Capital Management which amassed $17.7 million worth of shares. Moreover, Clearline Capital, North Run Capital, and Lucha Capital Management were also bullish on Carbon Black, Inc. (NASDAQ:CBLK), allocating a large percentage of their portfolios to this stock.

Seeing as Carbon Black, Inc. (NASDAQ:CBLK) has faced falling interest from hedge fund managers, it’s easy to see that there exists a select few money managers that elected to cut their entire stakes last quarter. Interestingly, Steve Cohen’s Point72 Asset Management cut the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $14.3 million in stock, and David Brown’s Hawk Ridge Management was right behind this move, as the fund said goodbye to about $9.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Carbon Black, Inc. (NASDAQ:CBLK) but similarly valued. These stocks are Winnebago Industries, Inc. (NYSE:WGO), Michaels Companies Inc (NASDAQ:MIK), Diamond Offshore Drilling Inc (NYSE:DO), and AZZ Incorporated (NYSE:AZZ). This group of stocks’ market caps are closest to CBLK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WGO 13 109505 -2
MIK 26 56812 -6
DO 13 64277 -5
AZZ 14 43126 -2
Average 16.5 68430 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $109 million in CBLK’s case. Michaels Companies Inc (NASDAQ:MIK) is the most popular stock in this table. On the other hand Winnebago Industries, Inc. (NYSE:WGO) is the least popular one with only 13 bullish hedge fund positions. Carbon Black, Inc. (NASDAQ:CBLK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CBLK as the stock returned 55.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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