Did Hedge Funds Drop The Ball On Carter’s, Inc. (CRI) ?

Abigail Fisher

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 15 S&P 500 stocks among hedge funds at the end of December 2018 yielded an average return of 19.7% year-to-date, vs. a gain of 13.1% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Carter's, Inc. (NYSE:CRI).

Is Carter's, Inc. (NYSE:CRI) a superb stock to buy now? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets decreased by 4 in recent months. Our calculations also showed that CRI isn't among the 30 most popular stocks among hedge funds. CRI was in 22 hedge funds' portfolios at the end of December. There were 26 hedge funds in our database with CRI positions at the end of the previous quarter.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

COATUE MANAGEMENT

We're going to take a look at the fresh hedge fund action regarding Carter's, Inc. (NYSE:CRI).

What does the smart money think about Carter's, Inc. (NYSE:CRI)?

Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in CRI a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CRI_apr2019

Among these funds, Millennium Management held the most valuable stake in Carter's, Inc. (NYSE:CRI), which was worth $56.9 million at the end of the third quarter. On the second spot was Valinor Management LLC which amassed $51.7 million worth of shares. Moreover, Diamond Hill Capital, Polaris Capital Management, and Citadel Investment Group were also bullish on Carter's, Inc. (NYSE:CRI), allocating a large percentage of their portfolios to this stock.

Since Carter's, Inc. (NYSE:CRI) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds who sold off their full holdings by the end of the third quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP dropped the largest investment of the 700 funds monitored by Insider Monkey, comprising about $34.1 million in stock, and John Tompkins's Tyvor Capital was right behind this move, as the fund said goodbye to about $30.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to Carter's, Inc. (NYSE:CRI). We will take a look at Coupa Software Incorporated (NASDAQ:COUP), Amedisys Inc (NASDAQ:AMED), Deckers Outdoor Corp (NYSE:DECK), and Synovus Financial Corp. (NYSE:SNV). This group of stocks' market values are similar to CRI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COUP,36,980963,-3 AMED,32,236663,12 DECK,21,398242,-1 SNV,32,688626,0 Average,30.25,576124,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $576 million. That figure was $276 million in CRI's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Deckers Outdoor Corp (NYSE:DECK) is the least popular one with only 21 bullish hedge fund positions. Carter's, Inc. (NYSE:CRI) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on CRI as the stock returned 27% and outperformed the market by an even larger margin.

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

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