At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Cooper Tire & Rubber Company (NYSE:CTB) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Cooper Tire & Rubber Company (NYSE:CTB) undervalued? Investors who are in the know were cutting their exposure. The number of bullish hedge fund positions shrunk by 2 lately. Cooper Tire & Rubber Company (NYSE:CTB) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. Our calculations also showed that CTB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to view the latest hedge fund action encompassing Cooper Tire & Rubber Company (NYSE:CTB).
What have hedge funds been doing with Cooper Tire & Rubber Company (NYSE:CTB)?
At second quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CTB over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the number one position in Cooper Tire & Rubber Company (NYSE:CTB). Royce & Associates has a $40 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Thyra Zerhusen of Fairpointe Capital, with a $21.6 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Steve Cohen’s Point72 Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Cooper Tire & Rubber Company (NYSE:CTB), around 3.64% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 3.14 percent of its 13F equity portfolio to CTB.
Seeing as Cooper Tire & Rubber Company (NYSE:CTB) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedge funds who sold off their full holdings in the second quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest investment of all the hedgies monitored by Insider Monkey, valued at close to $2.5 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also cut its stock, about $2.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Cooper Tire & Rubber Company (NYSE:CTB). These stocks are Open Lending Corporation (NASDAQ:LPRO), Southwestern Energy Company (NYSE:SWN), Mack Cali Realty Corp (NYSE:CLI), Chesapeake Utilities Corporation (NYSE:CPK), Frontline Ltd (NYSE:FRO), Karyopharm Therapeutics Inc (NASDAQ:KPTI), and Steelcase Inc. (NYSE:SCS). All of these stocks’ market caps match CTB’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $149 million in CTB’s case. Steelcase Inc. (NYSE:SCS) is the most popular stock in this table. On the other hand Chesapeake Utilities Corporation (NYSE:CPK) is the least popular one with only 9 bullish hedge fund positions. Cooper Tire & Rubber Company (NYSE:CTB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CTB is 56.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on CTB as the stock returned 15.2% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.