We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards America’s Car-Mart, Inc. (NASDAQ:CRMT).
Is CRMT a good stock to buy now? Investors who are in the know were becoming less hopeful. The number of long hedge fund bets fell by 5 recently. America’s Car-Mart, Inc. (NASDAQ:CRMT) was in 9 hedge funds’ portfolios at the end of September. The all time high for this statistics is 23. Our calculations also showed that CRMT isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a peek at the key hedge fund action encompassing America’s Car-Mart, Inc. (NASDAQ:CRMT).
Do Hedge Funds Think CRMT Is A Good Stock To Buy Now?
At the end of September, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in CRMT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the most valuable position in America’s Car-Mart, Inc. (NASDAQ:CRMT), worth close to $28.4 million, accounting for 0.3% of its total 13F portfolio. The second most bullish fund manager is Portolan Capital Management, managed by George McCabe, which holds a $18.6 million position; 2.1% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism include Ravi Chopra’s Azora Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and J. Daniel Plants’s Voce Capital. In terms of the portfolio weights assigned to each position Portolan Capital Management allocated the biggest weight to America’s Car-Mart, Inc. (NASDAQ:CRMT), around 2.11% of its 13F portfolio. Voce Capital is also relatively very bullish on the stock, designating 1.62 percent of its 13F equity portfolio to CRMT.
Because America’s Car-Mart, Inc. (NASDAQ:CRMT) has faced a decline in interest from the smart money, we can see that there were a few hedgies who sold off their positions entirely heading into Q4. Interestingly, David Harding’s Winton Capital Management dumped the biggest position of all the hedgies monitored by Insider Monkey, worth about $2.1 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $0.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 5 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as America’s Car-Mart, Inc. (NASDAQ:CRMT) but similarly valued. These stocks are Cass Information Systems (NASDAQ:CASS), Celldex Therapeutics, Inc. (NASDAQ:CLDX), Natus Medical Inc (NASDAQ:NTUS), Unitil Corporation (NYSE:UTL), Veeco Instruments Inc. (NASDAQ:VECO), National Presto Industries Inc. (NYSE:NPK), and Gladstone Commercial Corporation (NASDAQ:GOOD). This group of stocks’ market caps are similar to CRMT’s market cap.
|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 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $64 million in CRMT’s case. Natus Medical Inc (NASDAQ:NTUS) is the most popular stock in this table. On the other hand Cass Information Systems (NASDAQ:CASS) is the least popular one with only 5 bullish hedge fund positions. America’s Car-Mart, Inc. (NASDAQ:CRMT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CRMT is 22.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CRMT as the stock returned 30.4% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.