Did Hedge Funds Make The Right Call On Central Garden & Pet Co (CENT)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Central Garden & Pet Co (NASDAQ:CENT) based on that data and determine whether they were really smart about the stock.

Is Central Garden & Pet Co (NASDAQ:CENT) a first-rate stock to buy now? The smart money was becoming more confident. The number of long hedge fund bets advanced by 2 in recent months. Our calculations also showed that CENT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s check out the latest hedge fund action surrounding Central Garden & Pet Co (NASDAQ:CENT).

How are hedge funds trading Central Garden & Pet Co (NASDAQ:CENT)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CENT over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Armistice Capital was the largest shareholder of Central Garden & Pet Co (NASDAQ:CENT), with a stake worth $38.4 million reported as of the end of September. Trailing Armistice Capital was Renaissance Technologies, which amassed a stake valued at $29.8 million. Renaissance Technologies, D E Shaw, and Two Sigma Advisors 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 Armistice Capital allocated the biggest weight to Central Garden & Pet Co (NASDAQ:CENT), around 2.37% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.41 percent of its 13F equity portfolio to CENT.

Consequently, some big names have jumped into Central Garden & Pet Co (NASDAQ:CENT) headfirst. Echo Street Capital Management, managed by Greg Poole, created the most valuable position in Central Garden & Pet Co (NASDAQ:CENT). Echo Street Capital Management had $1.5 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also made a $0.7 million investment in the stock during the quarter. The following funds were also among the new CENT investors: Dmitry Balyasny’s Balyasny Asset Management, Paul Tudor Jones’s Tudor Investment Corp, and Philippe Laffont’s Coatue Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Central Garden & Pet Co (NASDAQ:CENT) but similarly valued. These stocks are Heartland Express, Inc. (NASDAQ:HTLD), Hailiang Education Group Inc. (NASDAQ:HLG), FS KKR Capital Corp. (NYSE:FSK), and Cantel Medical Corp. (NYSE:CMD). All of these stocks’ market caps are similar to CENT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTLD 11 28377 -3
HLG 2 7859 -1
FSK 19 84925 -9
CMD 17 88691 6
Average 12.25 52463 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $109 million in CENT’s case. FS KKR Capital Corp. (NYSE:FSK) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 2 bullish hedge fund positions. Central Garden & Pet Co (NASDAQ:CENT) 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on CENT as the stock returned 32.5% since Q1 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.