Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Should You Buy Culp, Inc. (CULP)?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Culp, Inc. (NYSE:CULP).

Hedge fund interest in Culp, Inc. (NYSE:CULP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as PICO Holdings Inc (NASDAQ:PICO), Mallinckrodt plc (NYSE:MNK), and Smith Micro Software, Inc. (NASDAQ:SMSI) to gather more data points. Our calculations also showed that CULP 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.

In the financial world there are plenty of methods investors employ to evaluate publicly traded companies. A duo of the most innovative methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can outclass their index-focused peers by a very impressive amount (see the details here).

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to review the fresh hedge fund action encompassing Culp, Inc. (NYSE:CULP).

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

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in CULP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Culp, Inc. (NYSE:CULP), which was worth $12.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $0.6 million worth of shares. D E Shaw, Two Sigma Advisors, and Royce & Associates 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 Renaissance Technologies allocated the biggest weight to Culp, Inc. (NYSE:CULP), around 0.01% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.0048 percent of its 13F equity portfolio to CULP.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s also examine hedge fund activity in other stocks similar to Culp, Inc. (NYSE:CULP). These stocks are PICO Holdings Inc (NASDAQ:PICO), Mallinckrodt plc (NYSE:MNK), Smith Micro Software, Inc. (NASDAQ:SMSI), and GSI Technology, Inc. (NASDAQ:GSIT). This group of stocks’ market caps are similar to CULP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PICO 11 27759 1
MNK 20 34235 0
SMSI 4 3943 2
GSIT 6 17724 2
Average 10.25 20915 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $15 million in CULP’s case. Mallinckrodt plc (NYSE:MNK) is the most popular stock in this table. On the other hand Smith Micro Software, Inc. (NASDAQ:SMSI) is the least popular one with only 4 bullish hedge fund positions. Culp, Inc. (NYSE:CULP) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CULP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CULP investors were disappointed as the stock returned -0.4% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.