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Did Hedge Funds Make The Right Call On Ceridian HCM Holding Inc. (CDAY) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ceridian HCM Holding Inc. (NYSE:CDAY) and determine whether hedge funds had an edge regarding this stock.

Is Ceridian HCM Holding Inc. (NYSE:CDAY) worth your attention right now? Investors who are in the know were reducing their bets on the stock. The number of bullish hedge fund bets went down by 7 recently. Our calculations also showed that CDAY 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). CDAY was in 24 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with CDAY holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Litowitz Magnetar Capital

Alec Litowitz of Magnetar Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to take a look at the key hedge fund action regarding Ceridian HCM Holding Inc. (NYSE:CDAY).

Hedge fund activity in Ceridian HCM Holding Inc. (NYSE:CDAY)

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in CDAY a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Ceridian HCM Holding Inc. (NYSE:CDAY) was held by Select Equity Group, which reported holding $520.9 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $162.5 million position. Other investors bullish on the company included Ashe Capital, Whale Rock Capital Management, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Ashe Capital allocated the biggest weight to Ceridian HCM Holding Inc. (NYSE:CDAY), around 12.35% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, dishing out 3.59 percent of its 13F equity portfolio to CDAY.

Because Ceridian HCM Holding Inc. (NYSE:CDAY) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely in the first quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest stake of the 750 funds tracked by Insider Monkey, worth close to $19.5 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund dumped about $17 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 7 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Ceridian HCM Holding Inc. (NYSE:CDAY). These stocks are Tenaris S.A. (NYSE:TS), Cloudflare, Inc. (NYSE:NET), CyrusOne Inc (NASDAQ:CONE), and Service Corporation International (NYSE:SCI). All of these stocks’ market caps resemble CDAY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TS 15 212792 -1
NET 24 498974 2
CONE 31 317450 -1
SCI 30 398250 12
Average 25 356867 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $1189 million in CDAY’s case. CyrusOne Inc (NASDAQ:CONE) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 15 bullish hedge fund positions. Ceridian HCM Holding Inc. (NYSE:CDAY) is not the least popular stock in this group but hedge fund interest is still below 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on CDAY as the stock returned 58.3% during the second quarter and outperformed the market by an even larger margin.

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