Were Hedge Funds Right About Covetrus, Inc. (CVET)?
Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Covetrus, Inc. (NASDAQ:CVET).
Is Covetrus, Inc. (NASDAQ:CVET) worth your attention right now? Prominent investors were getting less optimistic. The number of bullish hedge fund positions decreased by 2 in recent months. Covetrus, Inc. (NASDAQ:CVET) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 24. Our calculations also showed that CVET isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Charles Clough of Clough Capital Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind let's take a look at the key hedge fund action encompassing Covetrus, Inc. (NASDAQ:CVET).
Do Hedge Funds Think CVET Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVET over the last 23 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Covetrus, Inc. (NASDAQ:CVET) was held by Freshford Capital Management, which reported holding $63.5 million worth of stock at the end of December. It was followed by Rock Springs Capital Management with a $42 million position. Other investors bullish on the company included Clough Capital Partners, GAMCO Investors, and Hillhouse Capital Management. In terms of the portfolio weights assigned to each position Freshford Capital Management allocated the biggest weight to Covetrus, Inc. (NASDAQ:CVET), around 8.85% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, earmarking 0.92 percent of its 13F equity portfolio to CVET.
Judging by the fact that Covetrus, Inc. (NASDAQ:CVET) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few hedgies that elected to cut their positions entirely in the first quarter. Intriguingly, Phill Gross and Robert Atchinson's Adage Capital Management said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, comprising an estimated $17.2 million in stock. John Brennan's fund, Sirios Capital Management, also dropped its stock, about $5.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Covetrus, Inc. (NASDAQ:CVET) but similarly valued. We will take a look at BankUnited Inc (NYSE:BKU), Ryder System, Inc. (NYSE:R), F.N.B. Corp (NYSE:FNB), Balchem Corporation (NASDAQ:BCPC), Atlantica Sustainable Infrastructure plc (NASDAQ:AY), iRhythm Technologies, Inc. (NASDAQ:IRTC), and Resideo Technologies, Inc. (NYSE:REZI). This group of stocks' market valuations are similar to CVET's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKU,9,135009,-2 R,20,358550,3 FNB,16,55214,-3 BCPC,14,43987,1 AY,13,42815,-1 IRTC,19,153258,0 REZI,27,666840,-4 Average,16.9,207953,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $143 million in CVET's case. Resideo Technologies, Inc. (NYSE:REZI) is the most popular stock in this table. On the other hand BankUnited Inc (NYSE:BKU) is the least popular one with only 9 bullish hedge fund positions. Covetrus, Inc. (NASDAQ:CVET) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CVET is 46.5. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately CVET wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CVET were disappointed as the stock returned -16% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
