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Cubic Corporation (CUB) Lagging Its Peers In Smart Money Investment

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that pours in each day. The S&P 500 Index gained 5.2% in the 12 month-period that ended October 30, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular S&P 500 stocks among the hedge fund investors tracked by the Insider Monkey team returned 9.5% over the same period, which provides evidence that these money managers do have great stock picking abilities. Even more to that, 63% of these stocks managed to beat the S&P 500 Index. That’s why, we believe, it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Cubic Corporation (NYSE:CUB).

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Cubic Corporation (NYSE:CUB) was in 16 hedge funds’ portfolios at the end of the third quarter of 2015. Cubic Corporation (NYSE:CUB) investors should pay attention to a decrease in hedge fund sentiment recently. There were 22 hedge funds in our database with Cubic Corporation (NYSE:CUB) holdings at the end of the previous quarter. At the end of this article, we will also compare Cubic Corporation (NYSE:CUB) to other stocks including Adeptus Health Inc (NYSE:ADPT), Select Comfort Corp. (NASDAQ:SCSS), and John Bean Technologies Corporation (NYSE:JBT) to get a better sense of its popularity.

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If you’d ask most traders, hedge funds are assumed to be worthless, outdated investment vehicles of yesteryear. While there are greater than 8,000 funds trading at present, experts at Insider Monkey, a website specializing in hedge funds, look at the moguls of this group, around 700 funds. It is estimated that this group of investors watch over bulk of all hedge funds’ total capital, and by keeping an eye on their matchless investments, Insider Monkey has identified various investment strategies that have historically outstripped the market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per year for a decade in its backtests.

With all of this in mind, let’s take a glance at the key action encompassing Cubic Corporation (NYSE:CUB).

What does the smart money think about Cubic Corporation (NYSE:CUB)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish in this stock, a drop of 27% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, holds the most valuable position in Cubic Corporation (NYSE:CUB). First Pacific Advisors LLC has a $25.6 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Pzena Investment Management, led by Richard S. Pzena, holding a $21 million position; 0.1% of its 13F portfolio is allocated to the stock. Other hedge funds with similar optimism comprise Jim Simons’ Renaissance Technologies, Martin Whitman’s Third Avenue Management, and Mark Travis’ Intrepid Capital Management.

Since Cubic Corporation (NYSE:CUB) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Joel Greenblatt’s Gotham Asset Management said goodbye to the biggest stake of the 700 funds followed by Insider Monkey, valued at an estimated $11.6 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $4.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by six funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Cubic Corporation (NYSE:CUB). These stocks are Adeptus Health Inc (NYSE:ADPT), Select Comfort Corp. (NASDAQ:SCSS), John Bean Technologies Corporation (NYSE:JBT), and Innospec Inc. (NASDAQ:IOSP). This group of stocks’ market values are similar to Cubic Corporation (NYSE:CUB)’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADPT 27 235415 7
SCSS 25 138945 -4
JBT 19 100506 3
IOSP 16 165109 -3

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. In comparison, there was $91 million invested in Cubic Corporation. Adeptus Health Inc (NYSE:ADPT) is the most popular stock in this table. On the other hand, Innospec Inc. (NASDAQ:IOSP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Cubic Corporation (NYSE:CUB) is even less popular than Innospec Inc. (NASDAQ:IOSP). Considering that hedge funds aren’t fond of this stock relative to its market-cap peers, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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