Is Cardinal Financial Corporation (CFNL) A Good Stock To Buy?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Cardinal Financial Corporation (NASDAQ:CFNL) investors should pay attention to an increase in hedge fund sentiment recently. Of the 742 elite funds we track, 11 funds owned $70.08 million of Cardinal Financial Corporation (NASDAQ:CFNL) and accounted for 4.70% of the float on September 30, versus 9 funds and $33.16 million respectively on June 30. At the end of this article we will also compare CFNL to other stocks including TriMas Corp (NASDAQ:TRS), Transocean Partners LLC (NYSE:RIGP), and Insys Therapeutics Inc (NASDAQ:INSY) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Keeping this in mind, we’re going to take a look at the new action encompassing Cardinal Financial Corporation (NASDAQ:CFNL).

What have hedge funds been doing with Cardinal Financial Corporation (NASDAQ:CFNL)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in CFNL heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Cardinal Capital, led by Amy Minella, holds the most valuable position in Cardinal Financial Corporation (NASDAQ:CFNL). Cardinal Capital has a $30.6 million position in the stock, comprising 1.4% of its 13F portfolio. The second largest stake is held by Magnetar Capital, led by Alec Litowitz and Ross Laser, which holds a $21.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Israel Englander’s Millennium Management, one of the 10 largest hedge funds in the world, Jim Simons’s Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As industrywide interest jumped, specific money managers have been driving this bullishness. Funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Paul Tudor Jones’s Tudor Investment Corp, and Ken Griffin’s Citadel Investment Group.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cardinal Financial Corporation (NASDAQ:CFNL) but similarly valued. These stocks are TriMas Corp (NASDAQ:TRS), Transocean Partners LLC (NYSE:RIGP), Insys Therapeutics Inc (NASDAQ:INSY), and Fifth Street Finance Corp. (NASDAQ:FSC). All of these stocks’ market caps match CFNL’s market cap.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $70 million in CFNL’s case. Insys Therapeutics Inc (NASDAQ:INSY) is the most popular stock in this table. On the other hand Transocean Partners LLC (NYSE:RIGP) is the least popular one with only 8 bullish hedge fund positions. Cardinal Financial Corporation (NASDAQ:CFNL) 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. In this regard INSY might be a better candidate to consider taking a long position in.