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Were Hedge Funds Right About Flocking Into Crane Co. (CR)?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Crane Co. (NYSE:CR) was in 23 hedge funds’ portfolios at the end of December. CR has seen an increase in hedge fund sentiment lately. There were 19 hedge funds in our database with CR holdings at the end of the previous quarter. Our calculations also showed that CR isn’t among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let’s go over the fresh hedge fund action encompassing Crane Co. (NYSE:CR).

How have hedgies been trading Crane Co. (NYSE:CR)?

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the second quarter of 2018. On the other hand, there were a total of 18 hedge funds with a bullish position in CR a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

CR_apr2019

The largest stake in Crane Co. (NYSE:CR) was held by GAMCO Investors, which reported holding $155.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $59.1 million position. Other investors bullish on the company included Gardner Russo & Gardner, Millennium Management, and Two Sigma Advisors.

Now, key hedge funds have jumped into Crane Co. (NYSE:CR) headfirst. Millennium Management, managed by Israel Englander, initiated the biggest position in Crane Co. (NYSE:CR). Millennium Management had $7.4 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $3.7 million investment in the stock during the quarter. The other funds with brand new CR positions are Matthew Tewksbury’s Stevens Capital Management, Benjamin A. Smith’s Laurion Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Crane Co. (NYSE:CR) but similarly valued. We will take a look at Loxo Oncology Inc (NASDAQ:LOXO), SolarWinds Corporation (NYSE:SWI), United Microelectronics Corp (NYSE:UMC), and Texas Roadhouse Inc (NASDAQ:TXRH). All of these stocks’ market caps match CR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOXO 28 788056 -2
SWI 15 1989321 15
UMC 17 82238 0
TXRH 19 115870 0
Average 19.75 743871 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $744 million. That figure was $263 million in CR’s case. Loxo Oncology Inc (NASDAQ:LOXO) is the most popular stock in this table. On the other hand SolarWinds Corporation (NYSE:SWI) is the least popular one with only 15 bullish hedge fund positions. Crane Co. (NYSE:CR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CR, though not to the same extent, as the stock returned 22% and outperformed the market as well.

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

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