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Is Culp, Inc. (CFI) A Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Culp, Inc. (NYSE:CFI), and what that likely means for the prospects of the company and its stock.

Hedge fund interest in Culp, Inc. (NYSE:CFI) shares was flat at the end of last quarter, with 9 hedge funds bullish on the stock. At the end of this article we will also compare CFI to other stocks including Spok Holdings Inc (NASDAQ:SPOK), Cytokinetics, Inc. (NASDAQ:CYTK), and Dynex Capital Inc (NYSE:DX) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How have hedgies been trading Culp, Inc. (NYSE:CFI)?

Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter of 2016. By comparison, 13 hedge funds held shares or bullish call options in CFI heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HedgeFundSentimentChart

According to Insider Monkey’s hedge fund database, Renaissance Technologies, one of the largest hedge funds in the world, has the number one position in Culp, Inc. (NYSE:CFI), worth close to $19.1 million. The second largest stake is held by Chuck Royce’s Royce & Associates holding a $4.1 million position. Other members of the smart money that hold long positions contain John Overdeck and David Siegel’s Two Sigma Advisors, Cliff Asness’ AQR Capital Management and D. E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Due to the fact that Culp, Inc. (NYSE:CFI) has encountered declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Neil Chriss’ Hutchin Hill Capital sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $0.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $0.2 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Culp, Inc. (NYSE:CFI) but similarly valued. We will take a look at Spok Holdings Inc (NASDAQ:SPOK), Cytokinetics, Inc. (NASDAQ:CYTK), Dynex Capital Inc (NYSE:DX), and Landec Corporation (NASDAQ:LNDC). All of these stocks’ market caps are closest to CFI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPOK 5 32940 -5
CYTK 14 86056 1
DX 8 9110 3
LNDC 6 66086 0

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $28 million in CFI’s case. Cytokinetics, Inc. (NASDAQ:CYTK) is the most popular stock in this table. On the other hand Spok Holdings Inc (NASDAQ:SPOK) is the least popular one with only 5 bullish hedge fund positions. Culp, Inc. (NYSE:CFI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CYTK might be a better candidate to consider taking a long position in.

Disclosure: None