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Hedge Funds Have Never Been This Bullish On Charles River Laboratories (CRL)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Charles River Laboratories International Inc. (NYSE:CRL) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Charles River Laboratories International Inc. (NYSE:CRL) an excellent investment right now? The smart money was in a bullish mood. The number of bullish hedge fund positions went up by 5 in recent months. Charles River Laboratories International Inc. (NYSE:CRL) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CRL 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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 view the latest hedge fund action surrounding Charles River Laboratories International Inc. (NYSE:CRL).

How are hedge funds trading Charles River Laboratories International Inc. (NYSE:CRL)?

At the end of the second quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CRL over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in Charles River Laboratories International Inc. (NYSE:CRL). Renaissance Technologies has a $180.4 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $123.3 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise John W. Rogers’s Ariel Investments, David Cohen and Harold Levy’s Iridian Asset Management and Daniel S. Och’s OZ Management. In terms of the portfolio weights assigned to each position Tower House Partners allocated the biggest weight to Charles River Laboratories International Inc. (NYSE:CRL), around 19.4% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, designating 5.71 percent of its 13F equity portfolio to CRL.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Tower House Partners, managed by Paolo Mortarotti, established the most outsized position in Charles River Laboratories International Inc. (NYSE:CRL). Tower House Partners had $40.1 million invested in the company at the end of the quarter. Anthony Bozza’s Lakewood Capital Management also initiated a $39.2 million position during the quarter. The other funds with new positions in the stock are Ricky Sandler’s Eminence Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Anand Parekh’s Alyeska Investment Group.

Let’s check out hedge fund activity in other stocks similar to Charles River Laboratories International Inc. (NYSE:CRL). We will take a look at Natura &Co Holding S.A. (NYSE:NTCO), Brookfield Renewable Partners L.P. (NYSE:BEP), Elanco Animal Health Incorporated (NYSE:ELAN), James Hardie Industries plc (NYSE:JHX), IPG Photonics Corporation (NASDAQ:IPGP), F5 Networks, Inc. (NASDAQ:FFIV), and Shaw Communications Inc (NYSE:SJR). This group of stocks’ market valuations resemble CRL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTCO 5 85507 -3
BEP 5 30355 2
ELAN 30 212753 4
JHX 5 11376 1
IPGP 30 239086 10
FFIV 39 1073838 7
SJR 13 129866 1
Average 18.1 254683 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $255 million. That figure was $1051 million in CRL’s case. F5 Networks, Inc. (NASDAQ:FFIV) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Charles River Laboratories International Inc. (NYSE:CRL) is more popular among hedge funds. Our overall hedge fund sentiment score for CRL is 90. 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 returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on CRL as the stock returned 25.6% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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