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Did Hedge Funds Make The Right Call On Covetrus, Inc. (CVET) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Covetrus, Inc. (NASDAQ:CVET) and determine whether hedge funds skillfully traded this stock.

Is Covetrus, Inc. (NASDAQ:CVET) a first-rate investment today? Investors who are in the know were becoming hopeful. The number of long hedge fund positions inched up by 2 lately. Our calculations also showed that CVET 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). CVET was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with CVET positions at the end of the previous quarter.

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

To most investors, hedge funds are seen as slow, old financial tools of yesteryear. While there are over 8000 funds with their doors open at the moment, We look at the moguls of this club, approximately 850 funds. These investment experts control bulk of the smart money’s total capital, and by shadowing their first-class investments, Insider Monkey has formulated many investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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. Keeping this in mind we’re going to view the new hedge fund action surrounding Covetrus, Inc. (NASDAQ:CVET).

What have hedge funds been doing with Covetrus, Inc. (NASDAQ:CVET)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in CVET a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Freshford Capital Management held the most valuable stake in Covetrus, Inc. (NASDAQ:CVET), which was worth $61.5 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $19.5 million worth of shares. Arlington Value Capital, Two Sigma Advisors, and Viking Global 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 Freshford Capital Management allocated the biggest weight to Covetrus, Inc. (NASDAQ:CVET), around 15.48% of its 13F portfolio. Arlington Value Capital is also relatively very bullish on the stock, dishing out 1.17 percent of its 13F equity portfolio to CVET.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in Covetrus, Inc. (NASDAQ:CVET). Point72 Asset Management had $19.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $2 million investment in the stock during the quarter. The following funds were also among the new CVET investors: Lei Zhang’s Hillhouse Capital Management, Brandon Haley’s Holocene Advisors, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s check out hedge fund activity in other stocks similar to Covetrus, Inc. (NASDAQ:CVET). These stocks are TriCo Bancshares (NASDAQ:TCBK), First Commonwealth Financial Corporation (NYSE:FCF), Enviva Partners, LP (NYSE:EVA), and TiVo Corporation (NASDAQ:TIVO). This group of stocks’ market values are similar to CVET’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TCBK 10 30127 -1
FCF 11 22141 -4
EVA 5 86460 0
TIVO 20 72022 -6
Average 11.5 52688 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $115 million in CVET’s case. TiVo Corporation (NASDAQ:TIVO) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Covetrus, Inc. (NASDAQ:CVET) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CVET as the stock returned 119.8% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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