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Did Hedge Funds Drop The Ball On CIT Group Inc. (CIT)?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to CIT Group Inc. (NYSE:CIT) changed recently.

Is CIT Group Inc. (NYSE:CIT) an attractive stock to buy now? Prominent investors are betting on the stock. The number of long hedge fund bets improved by 1 lately. Our calculations also showed that CIT isn’t among the 30 most popular stocks among hedge funds. CIT was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 25 hedge funds in our database with CIT holdings at the end of the previous quarter.

According to most investors, hedge funds are assumed to be unimportant, old investment vehicles of years past. While there are greater than 8000 funds trading at present, We hone in on the masters of this club, approximately 750 funds. These investment experts orchestrate the lion’s share of the hedge fund industry’s total asset base, and by monitoring their best investments, Insider Monkey has spotted a number of investment strategies that have historically outperformed the market. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by nearly 5 percentage points annually since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Jeffrey Altman Owl Creek

Let’s analyze the fresh hedge fund action encompassing CIT Group Inc. (NYSE:CIT).

How have hedgies been trading CIT Group Inc. (NYSE:CIT)?

Heading into the first quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CIT over the last 14 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

CIT_apr2019

More specifically, First Pacific Advisors LLC was the largest shareholder of CIT Group Inc. (NYSE:CIT), with a stake worth $362.8 million reported as of the end of September. Trailing First Pacific Advisors LLC was Lakewood Capital Management, which amassed a stake valued at $92.2 million. MFP Investors, Renaissance Technologies, and Owl Creek Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Tontine Asset Management, managed by Jeffrey Gendell, assembled the most valuable call position in CIT Group Inc. (NYSE:CIT). Tontine Asset Management had $6.1 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $4.8 million position during the quarter. The other funds with brand new CIT positions are Gregg Moskowitz’s Interval Partners, Matthew Tewksbury’s Stevens Capital Management, and David Andre and Astro Teller’s Cerebellum Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as CIT Group Inc. (NYSE:CIT) but similarly valued. We will take a look at Amneal Pharmaceuticals, Inc. (NYSE:AMRX), Kirby Corporation (NYSE:KEX), nVent Electric plc (NYSE:NVT), and Brunswick Corporation (NYSE:BC). This group of stocks’ market caps are similar to CIT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMRX 8 75987 -3
KEX 16 409084 0
NVT 28 1015805 -1
BC 26 524487 -8
Average 19.5 506341 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $506 million. That figure was $600 million in CIT’s case. nVent Electric plc (NYSE:NVT) is the most popular stock in this table. On the other hand Amneal Pharmaceuticals, Inc. (NYSE:AMRX) is the least popular one with only 8 bullish hedge fund positions. CIT Group Inc. (NYSE:CIT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CIT as the stock returned 31.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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