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CGI Inc. (GIB): Hedge Funds Caught Flat-Footed

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of CGI Inc. (NYSE:GIB).

Is CGI Inc. (NYSE:GIB) a buy, sell, or hold? Money managers are betting on the stock. The number of long hedge fund positions advanced by 3 recently. Our calculations also showed that GIB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). GIB was in 19 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with GIB holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the latest hedge fund action encompassing CGI Inc. (NYSE:GIB).

What does smart money think about CGI Inc. (NYSE:GIB)?

At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GIB over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in CGI Inc. (NYSE:GIB), which was worth $243.2 million at the end of the third quarter. On the second spot was GLG Partners which amassed $61.6 million worth of shares. Galibier Capital Management, D E Shaw, and Bridgewater Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to CGI Inc. (NYSE:GIB), around 4.51% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, setting aside 1.21 percent of its 13F equity portfolio to GIB.

As one would reasonably expect, specific money managers were breaking ground themselves. D E Shaw, managed by D. E. Shaw, assembled the biggest position in CGI Inc. (NYSE:GIB). D E Shaw had $8.3 million invested in the company at the end of the quarter. Renaissance Technologies also made a $6.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Peter Muller’s PDT Partners, and George Zweig, Shane Haas and Ravi Chander’s Signition LP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CGI Inc. (NYSE:GIB) but similarly valued. We will take a look at DexCom, Inc. (NASDAQ:DXCM), KeyCorp (NYSE:KEY), Essex Property Trust Inc (NYSE:ESS), and Rogers Communications Inc. (NYSE:RCI). This group of stocks’ market caps are closest to GIB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DXCM 40 1052915 4
KEY 36 778453 6
ESS 33 568820 14
RCI 13 313836 -10
Average 30.5 678506 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $679 million. That figure was $351 million in GIB’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 13 bullish hedge fund positions. CGI Inc. (NYSE:GIB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately GIB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GIB investors were disappointed as the stock returned -34.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

Disclosure: None. This article was originally published at Insider Monkey.

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