Is China Yuchai International Limited (CYD) A Good Stock To Buy?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

China Yuchai International Limited (NYSE:CYD) was in 6 hedge funds’ portfolios at the end of September. CYD investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 7 hedge funds in our database with CYD holdings at the end of June. At the end of this article we will also compare CYD to other stocks including Resolute Forest Products Inc (NYSE:RFP), Textainer Group Holdings Limited (NYSE:TGH), and Ladenburg Thalmann Financial Services (NYSEAMEX:LTS) to get a better sense of its popularity.

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Hedge fund activity in China Yuchai International Limited (NYSE:CYD)

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 14% dip from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in CYD heading into this year, which has since tumbled by 33%. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Shah Capital Management, led by Himanshu H. Shah, holds the most valuable position in China Yuchai International Limited (NYSE:CYD). Shah Capital Management has a $37.7 million position in the stock, comprising 21% of its 13F portfolio. Sitting at the No. 2 spot is Forward Management, led by J. Alan Reid, Jr., which holds a $5.1 million position. Remaining peers that hold long positions encompass Renaissance Technologies, one of the largest hedge funds in the world, Francis Chou’s Chou Associates Management, and Ernest Chow and Jonathan Howe’s Sensato Capital Management. We’d like to point out an extraordinary observation. Three of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks, which makes this stock a bit of a dark horse pick despite the final conclusion below.

We view hedge fund activity in the stock as unfavorable, but in this case there was only a single hedge fund selling its entire position: First Eagle Investment Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified CYD as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as China Yuchai International Limited (NYSE:CYD) but similarly valued. We will take a look at Resolute Forest Products Inc (NYSE:RFP), Textainer Group Holdings Limited (NYSE:TGH), Ladenburg Thalmann Financial Services (NYSEAMEX:LTS), and Gener8 Maritime Inc (NYSE:GNRT). This group of stocks’ market values match CYD’s market value.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $47 million in CYD’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand Textainer Group Holdings Limited (NYSE:TGH) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks China Yuchai International Limited (NYSE:CYD) is only as popular as TGH and LTS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None