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Is Colfax Corporation (CFX) A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Colfax Corporation (NYSE:CFX) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Colfax Corporation (NYSE:CFX) shareholders have witnessed an increase in enthusiasm from smart money recently. Colfax Corporation (NYSE:CFX) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 43. Our calculations also showed that CFX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a gander at the fresh hedge fund action surrounding Colfax Corporation (NYSE:CFX).

Hedge fund activity in Colfax Corporation (NYSE:CFX)

At Q2’s end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CFX over the last 20 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of Colfax Corporation (NYSE:CFX), with a stake worth $105.6 million reported as of the end of September. Trailing Diamond Hill Capital was Cardinal Capital, which amassed a stake valued at $82.8 million. Royce & Associates, Citadel Investment Group, and Highbridge Capital Management 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 Cove Street Capital allocated the biggest weight to Colfax Corporation (NYSE:CFX), around 5.05% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 4.11 percent of its 13F equity portfolio to CFX.

Consequently, some big names have jumped into Colfax Corporation (NYSE:CFX) headfirst. Highbridge Capital Management, initiated the most outsized position in Colfax Corporation (NYSE:CFX). Highbridge Capital Management had $32.8 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $25.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Robert Vincent McHugh’s Jade Capital Advisors, and Louis Bacon’s Moore Global Investments.

Let’s now take a look at hedge fund activity in other stocks similar to Colfax Corporation (NYSE:CFX). These stocks are Quaker Chemical Corp (NYSE:KWR), OneMain Holdings Inc (NYSE:OMF), Medpace Holdings, Inc. (NASDAQ:MEDP), Murphy USA Inc. (NYSE:MUSA), AutoNation, Inc. (NYSE:AN), Kohl’s Corporation (NYSE:KSS), and Brooks Automation, Inc. (NASDAQ:BRKS). This group of stocks’ market caps match CFX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KWR 13 159316 5
OMF 37 342546 3
MEDP 22 220276 5
MUSA 27 301412 3
AN 29 293932 2
KSS 42 337352 16
BRKS 15 163794 -3
Average 26.4 259804 4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $607 million in CFX’s case. Kohl’s Corporation (NYSE:KSS) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 13 bullish hedge fund positions. Colfax Corporation (NYSE:CFX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CFX is 82. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on CFX as the stock returned 19.3% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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