CST Brands Inc (CST): Smart Money Heading for the Exits

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like CST Brands Inc (NYSE:CST).

CST Brands Inc (NYSE:CST) has seen a decrease in activity from the world’s largest hedge funds lately. CST was in 24 hedge funds’ portfolios at the end of September. There were 31 hedge funds in our database with CST positions at the end of the previous quarter. At the end of this article we will also compare CST to other stocks including Teradata Corporation (NYSE:TDC), EPAM Systems Inc (NYSE:EPAM), and CAE, Inc. (USA) (NYSE:CAE) to get a better sense of its popularity.

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What does the smart money think about CST Brands Inc (NYSE:CST)?

Heading into the fourth quarter of 2016, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a 23% fall from the previous quarter. That followed two quarters of positive sentiment, with ownership among hedgies still being higher than it was at the end of 2015. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
CST
Of the funds tracked by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the biggest position in CST Brands Inc (NYSE:CST). GAMCO Investors has a $128.9 million position in the stock. Coming in second is Magnetar Capital, led by Alec Litowitz and Ross Laser, holding a $102 million position; 1.6% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish include Matthew Halbower’s Pentwater Capital Management, Paul Tudor Jones’ Tudor Investment Corp, and D E Shaw.

Seeing as CST Brands Inc (NYSE:CST) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, Alan Fournier’s Pennant Capital Management dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $147.8 million in stock, and First Eagle Investment Management was right behind this move, as the fund said goodbye to about $40.5 million worth of shares. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 7 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CST Brands Inc (NYSE:CST) but similarly valued. These stocks are Teradata Corporation (NYSE:TDC), EPAM Systems Inc (NYSE:EPAM), CAE, Inc. (USA) (NYSE:CAE), and Black Hills Corp (NYSE:BKH). All of these stocks’ market caps are closest to CST’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TDC 23 377584 -3
EPAM 15 213757 -9
CAE 12 26317 1
BKH 13 322127 -5

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $447 million in CST’s case. Teradata Corporation (NYSE:TDC) is the most popular stock in this table. On the other hand CAE, Inc. (USA) (NYSE:CAE) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks CST Brands Inc (NYSE:CST) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio, bearing in mind that several hedge funds sold off the stock in Q3.

Disclosure: None