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Corrections Corp Of America (CXW): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

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Corrections Corp Of America (NYSE:CXW) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately.

Corrections Corp Of America

If you’d ask most shareholders, hedge funds are assumed to be unimportant, outdated investment tools of the past. While there are more than 8000 funds with their doors open today, we at Insider Monkey look at the crème de la crème of this group, about 450 funds. It is widely believed that this group controls most of all hedge funds’ total capital, and by watching their best stock picks, we have uncovered a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as integral, optimistic insider trading activity is a second way to parse down the financial markets. Just as you’d expect, there are many incentives for an executive to drop shares of his or her company, but just one, very simple reason why they would buy. Many academic studies have demonstrated the valuable potential of this tactic if “monkeys” understand what to do (learn more here).

With all of this in mind, let’s take a gander at the key action surrounding Corrections Corp Of America (NYSE:CXW).

How have hedgies been trading Corrections Corp Of America (NYSE:CXW)?

In preparation for this quarter, a total of 26 of the hedge funds we track were long in this stock, a change of 4% from the first quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully.

According to our comprehensive database, Jim Simons’s Renaissance Technologies had the largest position in Corrections Corp Of America (NYSE:CXW), worth close to $40.8 million, accounting for 0.1% of its total 13F portfolio. On Renaissance Technologies’s heels is Millennium Management, managed by Israel Englander, which held a $32.9 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds with similar optimism include Ric Dillon’s Diamond Hill Capital, Neil Chriss’s Hutchin Hill Capital and Greg Poole’s Echo Street Capital Management.

As industrywide interest jumped, some big names were breaking ground themselves. CR Intrinsic Investors, managed by SAC Subsidiary, initiated the biggest position in Corrections Corp Of America (NYSE:CXW). CR Intrinsic Investors had 9.8 million invested in the company at the end of the quarter. Andrew Sandler’s Sandler Capital Management also initiated a $8.5 million position during the quarter. The other funds with brand new CXW positions are James Dondero’s Highland Capital Management, Clint Carlson’s Carlson Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

What have insiders been doing with Corrections Corp Of America (NYSE:CXW)?

Insider purchases made by high-level executives is best served when the company we’re looking at has experienced transactions within the past half-year. Over the latest 180-day time frame, Corrections Corp Of America (NYSE:CXW) has seen zero unique insiders buying, and 12 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Corrections Corp Of America (NYSE:CXW). These stocks are FTI Consulting, Inc. (NYSE:FCN), Booz Allen Hamilton Holding Corporation (NYSE:BAH), The Corporate Executive Board Company (NYSE:CEB), Towers Watson & Co (NYSE:TW), and Genpact Limited (NYSE:G). All of these stocks are in the management services industry and their market caps resemble CXW’s market cap.

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