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Hedge Funds Have Never Been This Bullish On CBTX, Inc. (CBTX)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded CBTX, Inc. (NASDAQ:CBTX) and determine whether the smart money was really smart about this stock.

CBTX, Inc. (NASDAQ:CBTX) was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. CBTX shareholders have witnessed an increase in enthusiasm from smart money lately. There were 8 hedge funds in our database with CBTX positions at the end of the previous quarter. Our calculations also showed that CBTX 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).

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.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the key hedge fund action regarding CBTX, Inc. (NASDAQ:CBTX).

How are hedge funds trading CBTX, Inc. (NASDAQ:CBTX)?

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the fourth quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in CBTX a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is CBTX A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in CBTX, Inc. (NASDAQ:CBTX), which was worth $2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $1.6 million worth of shares. Two Sigma Advisors, Mendon Capital Advisors, and D E Shaw 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 Mendon Capital Advisors allocated the biggest weight to CBTX, Inc. (NASDAQ:CBTX), around 0.34% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, setting aside 0.16 percent of its 13F equity portfolio to CBTX.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. PDT Partners, managed by Peter Muller, created the biggest position in CBTX, Inc. (NASDAQ:CBTX). PDT Partners had $0.2 million invested in the company at the end of the quarter. Phil Stone’s Fourthstone LLC also made a $0.2 million investment in the stock during the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CBTX, Inc. (NASDAQ:CBTX) but similarly valued. We will take a look at ChampionX Corporation (NYSE:APY), Guess’, Inc. (NYSE:GES), Summit Hotel Properties Inc (NYSE:INN), and Ranpak Holdings Corp (NYSE:PACK). This group of stocks’ market caps are closest to CBTX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APY 19 49368 2
GES 16 31475 -4
INN 12 8543 -3
PACK 14 253601 -3
Average 15.25 85747 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $7 million in CBTX’s case. ChampionX Corporation (NYSE:APY) is the most popular stock in this table. On the other hand Summit Hotel Properties Inc (NYSE:INN) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks CBTX, Inc. (NASDAQ:CBTX) is even less popular than INN. Hedge funds dodged a bullet by taking a bearish stance towards CBTX. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately CBTX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CBTX investors were disappointed as the stock returned 18.8% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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