Was The Smart Money Right About Crowding into Crocs, Inc. (CROX)?

Keeping this in mind, let’s analyze whether Crocs, Inc. (NASDAQ:CROX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Crocs, Inc. (NASDAQ:CROX) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CROX has experienced an increase in hedge fund sentiment of late. There were 25 hedge funds in our database with CROX holdings at the end of March. Our calculations also showed that CROX 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.

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 S&P 500 ETFs by 58 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 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.

Bernard Horn of Polaris Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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 take a peek at the latest hedge fund action regarding Crocs, Inc. (NASDAQ:CROX).

How are hedge funds trading Crocs, Inc. (NASDAQ:CROX)?

At the end of June, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 48% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CROX over the last 20 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Crocs, Inc. (NASDAQ:CROX), with a stake worth $128 million reported as of the end of June. Trailing Renaissance Technologies was Woodson Capital Management, which amassed a stake valued at $68.1 million. Polaris Capital Management, Citadel Investment Group, and Junto Capital Management 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 Woodson Capital Management allocated the biggest weight to Crocs, Inc. (NASDAQ:CROX), around 5.25% of its 13F portfolio. Hidden Lake Asset Management is also relatively very bullish on the stock, designating 4.26 percent of its 13F equity portfolio to CROX.

As aggregate interest increased, key money managers have jumped into Crocs, Inc. (NASDAQ:CROX) headfirst. Junto Capital Management, managed by James Parsons, assembled the most outsized position in Crocs, Inc. (NASDAQ:CROX). Junto Capital Management had $49.7 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $37.7 million position during the quarter. The other funds with brand new CROX positions are George McCabe’s Portolan Capital Management, Zachary Miller’s Parian Global Management, and Kevin Mok’s Hidden Lake Asset Management.

Let’s go over hedge fund activity in other stocks similar to Crocs, Inc. (NASDAQ:CROX). These stocks are Ovintiv Inc. (NYSE:OVV), Brookfield Business Partners L.P. (NYSE:BBU), TreeHouse Foods Inc. (NYSE:THS), Vonage Holdings Corp. (NASDAQ:VG), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), and National General Holdings Corp (NASDAQ:NGHC). This group of stocks’ market values resemble CROX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OVV 16 99529 -3
BBU 3 1285 1
THS 32 223246 4
VG 30 257523 5
APLS 29 563976 -1
CSOD 31 565272 7
NGHC 17 241316 -1
Average 22.6 278878 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $279 million. That figure was $634 million in CROX’s case. TreeHouse Foods Inc. (NYSE:THS) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Crocs, Inc. (NASDAQ:CROX) is more popular among hedge funds. Our overall hedge fund sentiment score for CROX is 90. 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. 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 returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on CROX as the stock returned 42.1% since the end of June (through 10/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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