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How Did Cintas Corporation (CTAS) Compare Against Hedge Fund Darlings in 2019?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Cintas Corporation (NASDAQ:CTAS).

Cintas Corporation (NASDAQ:CTAS) has seen an increase in hedge fund sentiment of late. CTAS was in 37 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with CTAS holdings at the end of the previous quarter. Our calculations also showed that CTAS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s view the new hedge fund action encompassing Cintas Corporation (NASDAQ:CTAS).

What have hedge funds been doing with Cintas Corporation (NASDAQ:CTAS)?

At Q3’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 37% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CTAS over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Select Equity Group held the most valuable stake in Cintas Corporation (NASDAQ:CTAS), which was worth $112.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $111.5 million worth of shares. Chilton Investment Company, AQR Capital Management, and Citadel Investment Group 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 Bristol Gate Capital Partners allocated the biggest weight to Cintas Corporation (NASDAQ:CTAS), around 4.51% of its 13F portfolio. Harbor Spring Capital is also relatively very bullish on the stock, earmarking 3.4 percent of its 13F equity portfolio to CTAS.

Consequently, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the largest position in Cintas Corporation (NASDAQ:CTAS). Millennium Management had $55 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $52.4 million position during the quarter. The other funds with brand new CTAS positions are Paul Marshall and Ian Wace’s Marshall Wace, Steve Cohen’s Point72 Asset Management, and Lee Ainslie’s Maverick Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Cintas Corporation (NASDAQ:CTAS). These stocks are HP Inc. (NYSE:HPQ), PPG Industries, Inc. (NYSE:PPG), Sirius XM Holdings Inc (NASDAQ:SIRI), and TransDigm Group Incorporated (NYSE:TDG). This group of stocks’ market caps resemble CTAS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HPQ 38 2031394 6
PPG 27 421872 0
SIRI 33 1274312 4
TDG 56 5183262 8
Average 38.5 2227710 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $2228 million. That figure was $931 million in CTAS’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand PPG Industries, Inc. (NYSE:PPG) is the least popular one with only 27 bullish hedge fund positions. Cintas Corporation (NASDAQ:CTAS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on CTAS as the stock returned 62.8% in 2019 through December 23rd and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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