Should I Buy CareTrust REIT Inc (CTRE)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought CareTrust REIT Inc (NASDAQ:CTRE) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

CareTrust REIT Inc (NASDAQ:CTRE) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. CareTrust REIT Inc (NASDAQ:CTRE) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 20. There were 7 hedge funds in our database with CTRE positions at the end of the first quarter. Our calculations also showed that CTRE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Ian Wace Marshall Wace

Ian Wace of Marshall Wace

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind we’re going to view the recent hedge fund action regarding CareTrust REIT Inc (NASDAQ:CTRE).

What have hedge funds been doing with CareTrust REIT Inc (NASDAQ:CTRE)?

At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 171% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in CTRE a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, Millennium Management was the largest shareholder of CareTrust REIT Inc (NASDAQ:CTRE), with a stake worth $17.4 million reported as of the end of September. Trailing Millennium Management was D E Shaw, which amassed a stake valued at $11.7 million. Renaissance Technologies, Citadel Investment Group, and Marshall Wace LLP 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 Algert Coldiron Investors allocated the biggest weight to CareTrust REIT Inc (NASDAQ:CTRE), around 0.64% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.34 percent of its 13F equity portfolio to CTRE.

Now, some big names were leading the bulls’ herd. Renaissance Technologies, founded by Jim Simons, established the most valuable position in CareTrust REIT Inc (NASDAQ:CTRE). Renaissance Technologies had $6.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $3.5 million position during the quarter. The other funds with brand new CTRE positions are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CareTrust REIT Inc (NASDAQ:CTRE) but similarly valued. These stocks are Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), Viper Energy Partners LP (NASDAQ:VNOM), Plains GP Holdings LP (NYSE:PAGP), Ameris Bancorp (NASDAQ:ABCB), Innovative Industrial Properties, Inc. (NYSE:IIPR), Hub Group Inc (NASDAQ:HUBG), and SkyWest, Inc. (NASDAQ:SKYW). This group of stocks’ market caps are similar to CTRE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IRWD 32 369498 4
VNOM 10 40175 -1
PAGP 19 109862 -3
ABCB 17 82148 4
IIPR 20 185487 6
HUBG 21 199671 4
SKYW 16 83235 -2
Average 19.3 152868 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $57 million in CTRE’s case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand Viper Energy Partners LP (NASDAQ:VNOM) is the least popular one with only 10 bullish hedge fund positions. CareTrust REIT Inc (NASDAQ:CTRE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CTRE is 59. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately CTRE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CTRE investors were disappointed as the stock returned 5.1% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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