Is Cryolife Inc (CRY) Going To Burn These Hedge Funds ?

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 third 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 years and analyze what the smart money thinks of Cryolife Inc (NYSE:CRY) based on that data.

Cryolife Inc (NYSE:CRY) has experienced a decrease in enthusiasm from smart money recently. CRY was in 8 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with CRY holdings at the end of the previous quarter. Our calculations also showed that CRY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action regarding Cryolife Inc (NYSE:CRY).

What have hedge funds been doing with Cryolife Inc (NYSE:CRY)?

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in CRY a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Cryolife Inc (NYSE:CRY), which was worth $13.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $2.5 million worth of shares. Highland Capital Management, Perceptive Advisors, and D E Shaw 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 Royce & Associates allocated the biggest weight to Cryolife Inc (NYSE:CRY), around 0.12% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to CRY.

Due to the fact that Cryolife Inc (NYSE:CRY) has experienced a decline in interest from the smart money, it’s safe to say that there is a sect of fund managers that elected to cut their full holdings last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $4.9 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also cut its stock, about $3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 7 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Cryolife Inc (NYSE:CRY). We will take a look at Douglas Dynamics Inc (NYSE:PLOW), PC Connection, Inc. (NASDAQ:CNXN), NextGen Healthcare, Inc. (NASDAQ:NXGN), and Universal Insurance Holdings, Inc. (NYSE:UVE). This group of stocks’ market valuations match CRY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLOW 10 19937 3
CNXN 11 50307 3
NXGN 12 32218 -2
UVE 14 62385 0
Average 11.75 41212 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $20 million in CRY’s case. Universal Insurance Holdings, Inc. (NYSE:UVE) is the most popular stock in this table. On the other hand Douglas Dynamics Inc (NYSE:PLOW) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Cryolife Inc (NYSE:CRY) is even less popular than PLOW. Hedge funds dodged a bullet by taking a bearish stance towards CRY. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CRY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CRY investors were disappointed as the stock returned -8.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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