Hedge Funds Are Souring On Catalent Inc (CTLT)

We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st. In this article, we look at what those funds think of Catalent Inc (NYSE:CTLT) based on that data.

Is Catalent Inc (NYSE:CTLT) a buy here? Investors who are in the know were getting less bullish. The number of long hedge fund positions fell by 6 lately. Catalent Inc (NYSE:CTLT) was in 29 hedge funds’ portfolios at the end of March. The all time high for this statistic is 40. Our calculations also showed that CTLT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to take a look at the recent hedge fund action regarding Catalent Inc (NYSE:CTLT).

Do Hedge Funds Think CTLT Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in CTLT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CTLT A Good Stock To Buy?

The largest stake in Catalent Inc (NYSE:CTLT) was held by Citadel Investment Group, which reported holding $167 million worth of stock at the end of December. It was followed by Third Point with a $129 million position. Other investors bullish on the company included Marshall Wace LLP, Millennium Management, and Suvretta Capital Management. In terms of the portfolio weights assigned to each position Tower House Partners allocated the biggest weight to Catalent Inc (NYSE:CTLT), around 21.27% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, earmarking 3.64 percent of its 13F equity portfolio to CTLT.

Judging by the fact that Catalent Inc (NYSE:CTLT) has witnessed bearish sentiment from the smart money, it’s easy to see that there was a specific group of fund managers who sold off their full holdings heading into Q2. It’s worth mentioning that Arthur B Cohen and Joseph Healey’s Healthcor Management LP dropped the largest stake of the 750 funds monitored by Insider Monkey, worth close to $28.1 million in stock, and Kevin Molloy’s Iron Triangle Partners was right behind this move, as the fund cut about $16.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds heading into Q2.

Let’s now review hedge fund activity in other stocks similar to Catalent Inc (NYSE:CTLT). We will take a look at The AES Corporation (NYSE:AES), Incyte Corporation (NASDAQ:INCY), Cardinal Health, Inc. (NYSE:CAH), Huazhu Group Limited (NASDAQ:HTHT), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Imperial Oil Limited (NYSE:IMO), and Broadridge Financial Solutions, Inc. (NYSE:BR). This group of stocks’ market values are closest to CTLT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AES 51 1541608 13
INCY 32 3851519 -5
CAH 39 967855 -10
HTHT 27 687842 4
JBHT 22 339245 -4
IMO 13 65541 5
BR 22 233035 -3
Average 29.4 1098092 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $1098 million. That figure was $1016 million in CTLT’s case. The AES Corporation (NYSE:AES) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 13 bullish hedge fund positions. Catalent Inc (NYSE:CTLT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CTLT is 41.8. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately CTLT wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CTLT investors were disappointed as the stock returned 5.5% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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