Is Compass Diversified Holdings LLC (CODI) A Good Stock To Buy?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Compass Diversified Holdings LLC (NYSE:CODI) based on that data.

Compass Diversified Holdings LLC (NYSE:CODI) has experienced a decrease in hedge fund interest recently. CODI was in 4 hedge funds’ portfolios at the end of March. There were 6 hedge funds in our database with CODI positions at the end of the previous quarter. Our calculations also showed that CODI 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.

To most stock holders, hedge funds are seen as slow, old investment tools of yesteryear. While there are greater than 8000 funds with their doors open today, We hone in on the upper echelon of this group, approximately 850 funds. These investment experts control the majority of the smart money’s total asset base, and by keeping an eye on their first-class stock picks, Insider Monkey has brought to light several investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey 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 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. Now we’re going to view the fresh hedge fund action surrounding Compass Diversified Holdings LLC (NYSE:CODI).

How have hedgies been trading Compass Diversified Holdings LLC (NYSE:CODI)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in CODI a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, John Overdeck and David Siegel’s Two Sigma Advisors has the most valuable position in Compass Diversified Holdings LLC (NYSE:CODI), worth close to $1.9 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $0.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism consist of Ken Griffin’s Citadel Investment Group, Ken Griffin’s Citadel Investment Group and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position JS Capital allocated the biggest weight to Compass Diversified Holdings LLC (NYSE:CODI), around 0.02% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to CODI.

Because Compass Diversified Holdings LLC (NYSE:CODI) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds who were dropping their entire stakes in the third quarter. At the top of the heap, Mark Coe’s Intrinsic Edge Capital said goodbye to the largest stake of the 750 funds followed by Insider Monkey, worth about $1.7 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund cut about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Compass Diversified Holdings LLC (NYSE:CODI) but similarly valued. These stocks are Renewable Energy Group Inc (NASDAQ:REGI), HeadHunter Group PLC (NASDAQ:HHR), Sprout Social, Inc. (NASDAQ:SPT), and The Macerich Company (NYSE:MAC). This group of stocks’ market valuations resemble CODI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REGI 16 120237 -5
HHR 5 31273 -1
SPT 16 108149 -3
MAC 21 41257 -5
Average 14.5 75229 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $3 million in CODI’s case. The Macerich Company (NYSE:MAC) is the most popular stock in this table. On the other hand HeadHunter Group PLC (NASDAQ:HHR) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Compass Diversified Holdings LLC (NYSE:CODI) is even less popular than HHR. Hedge funds clearly dropped the ball on CODI as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on CODI as the stock returned 29.5% so far in the second quarter and outperformed the market by an even larger margin.

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