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Canadian National Railway (USA) (CNI): Insiders Are Dumping, Should You?: Kansas City Southern (KSU), Canadian Pacific Railway Limited (USA) (CP)

Is Canadian National Railway (USA) (NYSE:CNI) a buy right now? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience

Canadian National Railway (USA) (NYSE:CNI)In the eyes of most investors, hedge funds are assumed to be underperforming, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation at the moment, we look at the top tier of this club, about 450 funds. Most estimates calculate that this group oversees the majority of the smart money’s total asset base, and by tracking their top picks, we have deciphered a few investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 25 percentage points in 6.5 month (see the details here).

Just as beneficial, optimistic insider trading activity is a second way to parse down the stock market universe. As the old adage goes: there are a variety of stimuli for an insider to drop shares of his or her company, but just one, very clear reason why they would buy. Many academic studies have demonstrated the impressive potential of this strategy if you understand what to do (learn more here).

With all of this in mind, we’re going to take a glance at the key action encompassing Canadian National Railway (USA) (NYSE:CNI).

What have hedge funds been doing with Canadian National Railway (USA) (NYSE:CNI)?

In preparation for this year, a total of 11 of the hedge funds we track held long positions in this stock, a change of 0% from the previous quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings substantially.

When looking at the hedgies we track, Bill & Melinda Gates Foundation Trust, managed by Michael Larson, holds the most valuable position in Canadian National Railway (USA) (NYSE:CNI). Bill & Melinda Gates Foundation Trust has a $779 million position in the stock, comprising 4.6% of its 13F portfolio. On Bill & Melinda Gates Foundation Trust’s heels is D E Shaw, managed by D. E. Shaw, which held a $158 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds that hold long positions include Daniel Bubis’s Tetrem Capital Management, Jim Simons’s Renaissance Technologies and Ken Fisher’s Fisher Asset Management.

Because Canadian National Railway (USA) (NYSE:CNI) has experienced declining sentiment from hedge fund managers, it’s easy to see that there is a sect of hedge funds who sold off their entire stakes in Q4. Intriguingly, Ray Dalio’s Bridgewater Associates said goodbye to the biggest stake of the 450+ funds we watch, comprising about $1 million in stock.. Charles Davidson’s fund, Wexford Capital, also sold off its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Canadian National Railway (USA) (NYSE:CNI)?

Insider purchases made by high-level executives is particularly usable when the company in question has seen transactions within the past half-year. Over the latest 180-day time frame, Canadian National Railway (USA) (NYSE:CNI) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to Canadian National Railway (USA) (NYSE:CNI). These stocks are Kansas City Southern (NYSE:KSU), Canadian Pacific Railway Limited (USA) (NYSE:CP), CSX Corporation (NYSE:CSX), Norfolk Southern Corp. (NYSE:NSC), and Union Pacific Corporation (NYSE:UNP). This group of stocks are the members of the railroads industry and their market caps are closest to CNI’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Kansas City Southern (NYSE:KSU) 9 0 6
Canadian Pacific Railway Limited (USA) (NYSE:CP) 30 0 0
CSX Corporation (NYSE:CSX) 34 0 2
Norfolk Southern Corp. (NYSE:NSC) 31 0 4
Union Pacific Corporation (NYSE:UNP) 43 1 7

With the returns shown by the aforementioned research, everyday investors must always keep an eye on hedge fund and insider trading activity, and Canadian National Railway (USA) (NYSE:CNI) shareholders fit into this picture quite nicely.

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Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.