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Hedge Funds Are Buying Ceridian HCM Holding Inc. (CDAY)

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 second 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 5 years and analyze what the smart money thinks of Ceridian HCM Holding Inc. (NYSE:CDAY) based on that data and determine whether they were really smart about the stock.

Is Ceridian HCM Holding Inc. (NYSE:CDAY) a bargain? Hedge funds were becoming hopeful. The number of bullish hedge fund positions went up by 6 in recent months. Ceridian HCM Holding Inc. (NYSE:CDAY) was in 30 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. Our calculations also showed that CDAY isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to take a gander at the new hedge fund action surrounding Ceridian HCM Holding Inc. (NYSE:CDAY).

What does smart money think about Ceridian HCM Holding Inc. (NYSE:CDAY)?

At Q2’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in CDAY a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Ceridian HCM Holding Inc. (NYSE:CDAY) was held by Select Equity Group, which reported holding $769.1 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $456.5 million position. Other investors bullish on the company included Whale Rock Capital Management, Ashe Capital, 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 16.22% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, designating 4.42 percent of its 13F equity portfolio to CDAY.

As one would reasonably expect, key money managers were leading the bulls’ herd. Melvin Capital Management, managed by Gabriel Plotkin, assembled the biggest position in Ceridian HCM Holding Inc. (NYSE:CDAY). Melvin Capital Management had $31.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $15.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Simon Sadler’s Segantii Capital, Mikal Patel’s Oribel Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ceridian HCM Holding Inc. (NYSE:CDAY) but similarly valued. These stocks are Shinhan Financial Group Co., Ltd. (NYSE:SHG), Ulta Beauty, Inc. (NASDAQ:ULTA), Kirkland Lake Gold Ltd. (NYSE:KL), Enel Americas S.A. (NYSE:ENIA), Apollo Global Management Inc (NYSE:APO), Dynatrace, Inc. (NYSE:DT), and Teledyne Technologies Incorporated (NYSE:TDY). 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
SHG 2 5215 -3
ULTA 38 662360 -8
KL 23 603164 -5
ENIA 12 96078 5
APO 29 2070869 -5
DT 41 1061434 6
TDY 34 445927 13
Average 25.6 706435 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $706 million. That figure was $2099 million in CDAY’s case. Dynatrace, Inc. (NYSE:DT) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 2 bullish hedge fund positions. Ceridian HCM Holding Inc. (NYSE:CDAY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDAY is 74.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately CDAY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CDAY were disappointed as the stock returned -5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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