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Should You Buy Shares of CSX Corporation (CSX)?

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a foolproof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong sometimes, as in the case of some of their top picks from the index like Micron and Anadarko. The data, though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Is CSX Corporation (NYSE:CSX) a buy right now? Money managers are turning less bullish. The number of long hedge fund positions was trimmed by 1 recently. CSX Corporation (NYSE:CSX) was in 47 hedge funds’ portfolios at the end of the third quarter of 2015. There were 48 hedge funds in our database with CSX Corporation (NYSE:CSX) positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Crown Castle International Corp. (NYSE:CCI), Korea Electric Power Corporation (ADR) (NYSE:KEP), and L Brands Inc (NYSE:LB) to gather more data points.

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If you’d ask most traders, hedge funds are perceived as worthless, outdated investment vehicles of the past. While there are more than 8000 funds with their doors open at the moment, we hone in on the leaders of this club, around 700 funds. These hedge fund managers shepherd bulk of all hedge funds’ total capital, and by paying attention to their inimitable picks, Insider Monkey has brought to light a number of investment strategies that have historically beaten the market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, we’re going to go over the recent action surrounding CSX Corporation (NYSE:CSX).

Hedge fund activity in CSX Corporation (NYSE:CSX)

At the end of the third quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 2% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the number one position in CSX Corporation (NYSE:CSX). Citadel Investment Group has a $237.4 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is York Capital Management, led by James Dinan, holding a $121.6 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining hedge funds that are bullish include Cliff Asness’ AQR Capital Management, Jonathan Barrett and Paul Segal’s Luminus Management and Steve Cohen Point72 Asset Management.

Due to the fact that CSX Corporation (NYSE:CSX) has witnessed falling interest from the smart money, we can see that there exists a select few funds that slashed their full holdings heading into Q4. Intriguingly, Daniel S. Och’s OZ Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising close to $85.8 million in stock, and Stephen Mandel of Lone Pine Capital was right behind this move, as the fund sold off about $68.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to CSX Corporation (NYSE:CSX). We will take a look at Crown Castle International Corp. (NYSE:CCI), Korea Electric Power Corporation (ADR) (NYSE:KEP), L Brands Inc (NYSE:LB), and BB&T Corporation (NYSE:BBT). This group of stocks’ market valuations are similar to CSX Corporation (NYSE:CSX)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCI 46 1865337 -2
KEP 14 45168 2
LB 26 2211345 -6
BBT 30 791692 9

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1.23 billion. The aggregate value of hedge funds’ stakes in CSX Corporation (NYSE:CSX) stood at $1.39 billion and the company was more popular than its peers from the table above. Considering that hedge funds are fond of this stock, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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