Here’s What Hedge Funds Think About Central Garden & Pet Co (CENT)

Reymerlyn Martin

Sun, Jun 23, 2019, 7:44 PM

Central Garden & Pet Co (NASDAQ:CENT) was in 16 hedge funds' portfolios at the end of March. CENT shareholders have witnessed a decrease in hedge fund sentiment in recent months. There were 24 hedge funds in our database with CENT holdings at the end of the previous quarter. Our calculations also showed that CENT isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

We're going to take a look at the recent hedge fund action encompassing Central Garden & Pet Co (NASDAQ:CENT).

How have hedgies been trading Central Garden & Pet Co (NASDAQ:CENT)?

At Q1's end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the fourth quarter of 2018. On the other hand, there were a total of 18 hedge funds with a bullish position in CENT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the number one position in Central Garden & Pet Co (NASDAQ:CENT). Renaissance Technologies has a $23.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is CQS Cayman LP, led by Michael Hintze, holding a $19.1 million position; 0.9% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism contain Jim Simons's Renaissance Technologies, Greg Poole's Echo Street Capital Management and D. E. Shaw's D E Shaw.

Judging by the fact that Central Garden & Pet Co (NASDAQ:CENT) has experienced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedgies that decided to sell off their full holdings by the end of the third quarter. Intriguingly, George McCabe's Portolan Capital Management cut the largest position of the 700 funds tracked by Insider Monkey, valued at close to $9.2 million in stock, and Mark N. Diker's Diker Management was right behind this move, as the fund dumped about $2.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to Central Garden & Pet Co (NASDAQ:CENT). We will take a look at Park National Corporation (NYSEAMEX:PRK), MRC Global Inc (NYSE:MRC), Calavo Growers, Inc. (NASDAQ:CVGW), and Advanced Drainage Systems, Inc. (NYSE:WMS). This group of stocks' market values resemble CENT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRK,5,12810,-2 MRC,18,105875,3 CVGW,12,46900,-2 WMS,17,273479,0 Average,13,109766,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $125 million in CENT's case. MRC Global Inc (NYSE:MRC) is the most popular stock in this table. On the other hand Park National Corporation (NYSEAMEX:PRK) is the least popular one with only 5 bullish hedge fund positions. Central Garden & Pet Co (NASDAQ:CENT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on CENT as the stock returned 10.2% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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