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Is Carter’s, Inc. (CRI) Going to Burn These Hedge Funds?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Carter’s, Inc. (NYSE:CRI).

Is Carter’s, Inc. (NYSE:CRI) a splendid investment now? Money managers are in a pessimistic mood. The number of long hedge fund positions were cut by 4 lately. Our calculations also showed that CRI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the recent hedge fund action regarding Carter’s, Inc. (NYSE:CRI).

Hedge fund activity in Carter’s, Inc. (NYSE:CRI)

At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in CRI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management has the most valuable position in Carter’s, Inc. (NYSE:CRI), worth close to $60 million, corresponding to 0.1% of its total 13F portfolio. The second most bullish fund manager is Ric Dillon of Diamond Hill Capital, with a $51.7 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions consist of Bernard Horn’s Polaris Capital Management, David Gallo’s Valinor Management LLC and Jack Woodruff’s Candlestick Capital Management. In terms of the portfolio weights assigned to each position Valinor Management LLC allocated the biggest weight to Carter’s, Inc. (NYSE:CRI), around 2.3% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, designating 1.89 percent of its 13F equity portfolio to CRI.

Since Carter’s, Inc. (NYSE:CRI) has faced falling interest from hedge fund managers, we can see that there lies a certain “tier” of fund managers that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Gregg Moskowitz’s Interval Partners dropped the biggest investment of all the hedgies monitored by Insider Monkey, valued at close to $22.8 million in stock, and Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $19 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Carter’s, Inc. (NYSE:CRI) but similarly valued. These stocks are Repligen Corporation (NASDAQ:RGEN), Global Blood Therapeutics Inc (NASDAQ:GBT), Clean Harbors Inc (NYSE:CLH), and First Financial Bankshares Inc (NASDAQ:FFIN). This group of stocks’ market valuations match CRI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RGEN 23 247507 -3
GBT 23 793382 -3
CLH 24 474390 -4
FFIN 13 9578 -3
Average 20.75 381214 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $263 million in CRI’s case. Clean Harbors Inc (NYSE:CLH) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 13 bullish hedge fund positions. Carter’s, Inc. (NYSE:CRI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CRI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CRI were disappointed as the stock returned -33.4% during the same time period 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 this year.
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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