Hedge Funds Never Been Less Bullish On Capital Senior Living Corporation (CSU)

In this article we are going to use hedge fund sentiment as a tool and determine whether Capital Senior Living Corporation (NYSE:CSU) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Capital Senior Living Corporation (NYSE:CSU) has experienced a decrease in hedge fund sentiment recently. Capital Senior Living Corporation (NYSE:CSU) was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 21. There were 5 hedge funds in our database with CSU holdings at the end of June. Our calculations also showed that CSU isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.

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 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. With all of this in mind let’s take a gander at the new hedge fund action regarding Capital Senior Living Corporation (NYSE:CSU).

What does smart money think about Capital Senior Living Corporation (NYSE:CSU)?

At third quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in CSU a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CSU A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Arbiter Partners Capital Management, managed by Paul J. Isaac, holds the biggest position in Capital Senior Living Corporation (NYSE:CSU). Arbiter Partners Capital Management has a $2.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Cove Street Capital, managed by Jeffrey Bronchick, which holds a $1.5 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish comprise  Renaissance Technologies, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Cove Street Capital allocated the biggest weight to Capital Senior Living Corporation (NYSE:CSU), around 0.28% of its 13F portfolio. Arbiter Partners Capital Management is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to CSU.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Levin Capital Strategies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CSU as a viable investment and initiated a position in the stock.

Let’s go over hedge fund activity in other stocks similar to Capital Senior Living Corporation (NYSE:CSU). These stocks are Histogen Inc. (NASDAQ:HSTO), ZK International Group Co., Ltd. (NASDAQ:ZKIN), Second Sight Medical Products Inc (NASDAQ:EYES), Intec Pharma Ltd (NASDAQ:NTEC), Comstock Holding Companies, Inc. (NASDAQ:CHCI), Hallador Energy Co (NASDAQ:HNRG), and U.S. Well Services, Inc. (NASDAQ:USWS). This group of stocks’ market valuations match CSU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HSTO 1 173 0
ZKIN 1 486 0
EYES 1 20 0
NTEC 2 17 -2
CHCI 3 930 1
HNRG 6 1061 -6
USWS 6 379 0
Average 2.9 438 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.9 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $5 million in CSU’s case. Hallador Energy Co (NASDAQ:HNRG) is the most popular stock in this table. On the other hand Histogen Inc. (NASDAQ:HSTO) is the least popular one with only 1 bullish hedge fund positions. Capital Senior Living Corporation (NYSE:CSU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSU is 39.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on CSU as the stock returned 49.2% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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