CSX Corporation (CSX): Hedge Funds and Insiders Are Bearish, What Should You Do?

Is CSX Corporation (NYSE:CSX) a buy here? Prominent investors are taking a pessimistic view. The number of long hedge fund bets dropped by 1 lately.

In the eyes of most market participants, hedge funds are perceived as unimportant, outdated financial vehicles of yesteryear. While there are more than 8000 funds trading at present, we look at the leaders of this club, around 450 funds. Most estimates calculate that this group oversees the lion’s share of the smart money’s total capital, and by paying attention to their top investments, we have unearthed a number of investment strategies that have historically beaten the S&P 500 index. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as key, optimistic insider trading sentiment is another way to parse down the stock market universe. Just as you’d expect, there are a variety of reasons for a corporate insider to get rid of shares of his or her company, but just one, very simple reason why they would initiate a purchase. Plenty of empirical studies have demonstrated the market-beating potential of this strategy if “monkeys” know what to do (learn more here).

Consequently, we’re going to take a look at the latest action encompassing CSX Corporation (NYSE:CSX).

How are hedge funds trading CSX Corporation (NYSE:CSX)?

Heading into Q2, a total of 36 of the hedge funds we track were long in this stock, a change of -3% from the first quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully.

CSX Corporation (NYSE:CSX)When looking at the hedgies we track, Impala Asset Management, managed by Robert Bishop, holds the most valuable position in CSX Corporation (NYSE:CSX). Impala Asset Management has a $55.9 million position in the stock, comprising 2.9% of its 13F portfolio. The second largest stake is held by Thomas Lenox Kempner of Davidson Kempner, with a $44.9 million position; 4.6% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism include Phill Gross and Robert Atchinson’s Adage Capital Management, Gilchrist Berg’s Water Street Capital and Robert Jaffe’s Force Capital.

Because CSX Corporation (NYSE:CSX) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few hedgies that elected to cut their positions entirely heading into Q2. Intriguingly, John A. Levin’s Levin Capital Strategies sold off the largest investment of all the hedgies we watch, totaling an estimated $43.2 million in stock., and Daniel Arbess of Xerion was right behind this move, as the fund dropped about $32.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q2.

What do corporate executives and insiders think about CSX Corporation (NYSE:CSX)?

Insider buying is best served when the primary stock in question has experienced transactions within the past half-year. Over the latest six-month time frame, CSX Corporation (NYSE:CSX) has seen zero unique insiders purchasing, and 3 insider sales (see the details of insider trades here).

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