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Hedge Funds Are Getting Bullish On Compass Minerals International, Inc. (CMP)

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 Compass Minerals International, Inc. (NYSE:CMP) based on that data and determine whether they were really smart about the stock.

Is Compass Minerals International, Inc. (NYSE:CMP) an outstanding investment now? Investors who are in the know were betting on the stock. The number of long hedge fund bets increased by 2 recently. Compass Minerals International, Inc. (NYSE:CMP) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CMP 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.

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 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 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 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.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a gander at the new hedge fund action encompassing Compass Minerals International, Inc. (NYSE:CMP).

How have hedgies been trading Compass Minerals International, Inc. (NYSE:CMP)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CMP over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Cove Street Capital held the most valuable stake in Compass Minerals International, Inc. (NYSE:CMP), which was worth $30.2 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $5.6 million worth of shares. Citadel Investment Group, GLG Partners, and Adage Capital Management 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 Cove Street Capital allocated the biggest weight to Compass Minerals International, Inc. (NYSE:CMP), around 5.97% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, designating 2.03 percent of its 13F equity portfolio to CMP.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the largest position in Compass Minerals International, Inc. (NYSE:CMP). Adage Capital Management had $3.4 million invested in the company at the end of the quarter. Michael O’Keefe’s 12th Street Asset Management also initiated a $2.7 million position during the quarter. The following funds were also among the new CMP investors: Jeffrey Moskowitz’s Harvey Partners, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Joel Greenblatt’s Gotham Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Compass Minerals International, Inc. (NYSE:CMP) but similarly valued. These stocks are Osisko Gold Royalties Ltd (NYSE:OR), Callaway Golf Company (NYSE:ELY), Big Lots, Inc. (NYSE:BIG), Zymeworks Inc. (NYSE:ZYME), CareTrust REIT Inc (NASDAQ:CTRE), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), and Viper Energy Partners LP (NASDAQ:VNOM). This group of stocks’ market caps resemble CMP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OR 15 143014 2
ELY 24 277158 1
BIG 22 247501 7
ZYME 31 601363 4
CTRE 19 57146 12
IRWD 32 369498 4
VNOM 10 40175 -1
Average 21.9 247979 4.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $62 million in CMP’s case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand Viper Energy Partners LP (NASDAQ:VNOM) is the least popular one with only 10 bullish hedge fund positions. Compass Minerals International, Inc. (NYSE:CMP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CMP is 55.2. 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. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on CMP as the stock returned 23.3% in the third quarter and outperformed the market by an even larger margin.

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