Here’s Why Palm Valley Capital Sold its Carter’s Inc. (CRI) Stake

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 Carter’s, Inc. (NYSE: CRI), and discussed its stance on the firm. Carter’s, Inc. is an Atlanta, Georgia-based children’s apparel company, that currently has a $4.6 billion market capitalization. CRI delivered an 11.02% return since the beginning of the year, extending its 12-month revenues to 26.59%. The stock closed at $104.44 per share on July 09, 2021.

Here is what Palm Valley Capital Management has to say about Carter’s, Inc. in its Q2 2021 investor letter:

“We sold Carters (ticker: CRI) after the share price exceeded our intrinsic value estimates. These company was negatively
impacted by the pandemic but is beginning to see light at the end of the tunnel.”

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Oksana Kuzmina/

Based on our calculations, Carter’s, Inc. (NYSE: CRI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Carter’s, Inc. was in 27 hedge fund portfolios at the end of the first quarter of 2021, compared to 25 funds in the fourth quarter of 2020. CRI delivered an 11.95% 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.