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Hedge Funds Are Selling Covenant Transportation Group, Inc. (CVTI)

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Covenant Transportation Group, Inc. (NASDAQ:CVTI) and see how the stock is affected by the recent hedge fund activity.

Covenant Transportation Group, Inc. (NASDAQ:CVTI) shareholders have witnessed a decrease in hedge fund interest recently. CVTI was in 11 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with CVTI positions at the end of the previous quarter. Our calculations also showed that CVTI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the key hedge fund action regarding Covenant Transportation Group, Inc. (NASDAQ:CVTI).

What have hedge funds been doing with Covenant Transportation Group, Inc. (NASDAQ:CVTI)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in CVTI a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is CVTI A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of Covenant Transportation Group, Inc. (NASDAQ:CVTI), with a stake worth $4.4 million reported as of the end of September. Trailing D E Shaw was AQR Capital Management, which amassed a stake valued at $3.4 million. Scopus Asset Management, Basswood Capital, 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 Basswood Capital allocated the biggest weight to Covenant Transportation Group, Inc. (NASDAQ:CVTI), around 0.19% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to CVTI.

Since Covenant Transportation Group, Inc. (NASDAQ:CVTI) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of fund managers that slashed their entire stakes in the third quarter. Interestingly, George McCabe’s Portolan Capital Management dumped the largest position of the “upper crust” of funds followed by Insider Monkey, comprising about $2.3 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $1.6 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Covenant Transportation Group, Inc. (NASDAQ:CVTI) but similarly valued. These stocks are Investors Title Company (NASDAQ:ITIC), NN, Inc. (NASDAQ:NNBR), Minerva Neurosciences, Inc (NASDAQ:NERV), and Southern First Bancshares, Inc. (NASDAQ:SFST). This group of stocks’ market values are similar to CVTI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITIC 4 38476 1
NNBR 5 36968 -1
NERV 10 28964 1
SFST 5 33274 -2
Average 6 34421 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $20 million in CVTI’s case. Minerva Neurosciences, Inc (NASDAQ:NERV) is the most popular stock in this table. On the other hand Investors Title Company (NASDAQ:ITIC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Covenant Transportation Group, Inc. (NASDAQ:CVTI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CVTI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CVTI were disappointed as the stock returned -18.3% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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