Is Cantel Medical Corp. (CMD) Going To Burn These Hedge Funds ?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Cantel Medical Corp. (NYSE:CMD).

Cantel Medical Corp. (NYSE:CMD) was in 11 hedge funds’ portfolios at the end of June. CMD investors should pay attention to a decrease in hedge fund sentiment recently. There were 18 hedge funds in our database with CMD holdings at the end of the previous quarter. Our calculations also showed that CMD isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Matthew Hulsizer PEAK6 Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the latest hedge fund action encompassing Cantel Medical Corp. (NYSE:CMD).

How have hedgies been trading Cantel Medical Corp. (NYSE:CMD)?

At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -39% from the first quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in CMD a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with CMD Positions

Of the funds tracked by Insider Monkey, Diker Management, managed by Mark N. Diker, holds the number one position in Cantel Medical Corp. (NYSE:CMD). Diker Management has a $94 million position in the stock, comprising 34.4% of its 13F portfolio. Coming in second is Select Equity Group, led by Robert Joseph Caruso, holding a $35 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain Justin John Ferayorni’s Tamarack Capital Management, Mario Gabelli’s GAMCO Investors and Matthew Hulsizer’s PEAK6 Capital Management.

Judging by the fact that Cantel Medical Corp. (NYSE:CMD) has faced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few money managers that slashed their entire stakes in the second quarter. It’s worth mentioning that Ian Simm’s Impax Asset Management sold off the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth about $32.1 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $2.1 million worth. These moves are interesting, as total hedge fund interest dropped by 7 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cantel Medical Corp. (NYSE:CMD) but similarly valued. These stocks are BridgeBio Pharma, Inc. (NASDAQ:BBIO), MFA Financial, Inc. (NYSE:MFA), Legg Mason, Inc. (NYSE:LM), and Vermilion Energy Inc (NYSE:VET). This group of stocks’ market caps resemble CMD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBIO 14 1069073 14
MFA 17 103174 1
LM 18 448975 1
VET 7 9671 1
Average 14 407723 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $147 million in CMD’s case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 7 bullish hedge fund positions. Cantel Medical Corp. (NYSE:CMD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CMD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CMD investors were disappointed as the stock returned -7.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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