Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CTS Corporation (NYSE:CTS).
Is CTS a good stock to buy now? The smart money was turning less bullish. The number of long hedge fund positions were cut by 3 recently. CTS Corporation (NYSE:CTS) was in 11 hedge funds’ portfolios at the end of September. The all time high for this statistics is 14. Our calculations also showed that CTS 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). There were 14 hedge funds in our database with CTS holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely 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. Keeping this in mind we’re going to view the key hedge fund action surrounding CTS Corporation (NYSE:CTS).
Do Hedge Funds Think CTS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CTS over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Mario Gabelli’s GAMCO Investors has the most valuable position in CTS Corporation (NYSE:CTS), worth close to $37.8 million, comprising 0.4% of its total 13F portfolio. Coming in second is Renaissance Technologies, holding a $7.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Harvey Partners allocated the biggest weight to CTS Corporation (NYSE:CTS), around 1.16% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.42 percent of its 13F equity portfolio to CTS.
Because CTS Corporation (NYSE:CTS) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers who were dropping their full holdings last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $3.8 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund cut about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to CTS Corporation (NYSE:CTS). We will take a look at Tactile Systems Technology, Inc. (NASDAQ:TCMD), Zumiez Inc. (NASDAQ:ZUMZ), H&E Equipment Services, Inc. (NASDAQ:HEES), Kforce Inc. (NASDAQ:KFRC), Everi Holdings Inc (NYSE:EVRI), Phibro Animal Health Corp (NASDAQ:PAHC), and IMAX Corporation (NYSE:IMAX). This group of stocks’ market caps are closest to CTS’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 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $57 million in CTS’s case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand H&E Equipment Services, Inc. (NASDAQ:HEES) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks CTS Corporation (NYSE:CTS) is even less popular than HEES. Our overall hedge fund sentiment score for CTS is 25.6. 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. Hedge funds clearly dropped the ball on CTS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 CTS as the stock returned 47.2% since Q3 (through December 8th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.