Palm Valley Capital Management, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 1.16% was recorded by the fund for the second quarter of 2021, trailing the S&P SmallCap 600 and Morningstar Small Cap Index that delivered a 4.50%, and 4.23% returns respectively for the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Palm Valley Capital Management, the fund mentioned Crawford & Company (NYSE: CRD-A), and discussed its stance on the firm. Crawford & Company is an Atlanta, Georgia-based providers of claims management to the risk management and insurance industry, that currently has a $498.4 ,million market capitalization. CRD-A delivered a 27.20% return since the beginning of the year, extending its 12-month revenues to 34.67%. The stock closed at $9.40 per share on July 09, 2021.
Here is what Palm Valley Capital Management has to say about Crawford & Company in its Q2 2021 investor letter:
“The only position having a negative impact to performance exceeding 10 basis points during Q2 was Crawford & Co (tickers: CRD/A, CRD/B). Crawford’s operational performance has been strong over the past few quarters, with severe weather driving results in its insurance claims businesses and improving trends for the employment-driven third-party administration segment. The shares are trading for less than 8x operating profit and a double-digit free cash flow yield. This is an attractive absolute valuation and incredibly low relative to market multiples. We believe Crawford’s shares are suffering an excessive discount due to its dual class share structure. Investors also appear to have ignored a $130 million reduction in the company’s net borrowings and pension liabilities over the last four years, which alone is worth nearly $2.50 per share (over 25% of the current price). We believe Crawford is one of a small number of remaining undervalued U.S. small caps that is not a commodity company.”
Based on our calculations, Crawford & Company (NYSE: CRD-A) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Crawford & Company was in 8 hedge fund portfolios at the end of the first quarter of 2021. CRD-A delivered a -12.15% return in the past 3 months.
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.
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Disclosure: None. This article is originally published at Insider Monkey.