Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Colfax Corporation (NYSE:CFX).
Colfax Corporation (NYSE:CFX) was in 32 hedge funds’ portfolios at the end of March. CFX investors should pay attention to a decrease in hedge fund sentiment lately. There were 43 hedge funds in our database with CFX positions at the end of the previous quarter. Our calculations also showed that CFX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 monthly stock picks returned 87% since March 2017 and outperformed the S&P 500 ETFs by more than 51 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the key hedge fund action surrounding Colfax Corporation (NYSE:CFX).
How have hedgies been trading Colfax Corporation (NYSE:CFX)?
At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CFX over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Colfax Corporation (NYSE:CFX), with a stake worth $77.4 million reported as of the end of September. Trailing Diamond Hill Capital was Cardinal Capital, which amassed a stake valued at $67.9 million. Royce & Associates, Eminence Capital, and Markel Gayner Asset 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 4.51% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, dishing out 3.34 percent of its 13F equity portfolio to CFX.
Due to the fact that Colfax Corporation (NYSE:CFX) has faced bearish sentiment from the smart money, we can see that there lies a certain “tier” of funds that decided to sell off their entire stakes in the first quarter. At the top of the heap, Wallace Weitz’s Wallace R. Weitz & Co. sold off the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling about $45.4 million in stock, and Charles Davidson and Joseph Jacobs’s Wexford Capital was right behind this move, as the fund sold off about $36 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 11 funds in the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Colfax Corporation (NYSE:CFX) but similarly valued. These stocks are United Bankshares, Inc. (NASDAQ:UBSI), Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Natera Inc (NASDAQ:NTRA), and Wingstop Inc (NASDAQ:WING). This group of stocks’ market valuations are closest to CFX’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $421 million in CFX’s case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is the least popular one with only 9 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 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on CFX as the stock returned 41.7% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.