Did Hedge Funds Make The Right Call On CAE, Inc. (CAE) ?

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 821 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 March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded CAE, Inc. (NYSE:CAE) and determine whether the smart money was really smart about this stock.

Is CAE, Inc. (NYSE:CAE) a buy, sell, or hold? Money managers were buying. The number of bullish hedge fund positions advanced by 10 recently. Our calculations also showed that CAE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CAE was in 20 hedge funds’ portfolios at the end of March. There were 10 hedge funds in our database with CAE holdings at the end of the previous quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a glance at the fresh hedge fund action encompassing CAE, Inc. (NYSE:CAE).

How have hedgies been trading CAE, Inc. (NYSE:CAE)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in CAE a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is CAE A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of CAE, Inc. (NYSE:CAE), with a stake worth $16.1 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $14.8 million. Sandler Capital Management, Two Sigma Advisors, and Goodnow Investment Group 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 Banbury Partners allocated the biggest weight to CAE, Inc. (NYSE:CAE), around 2.5% of its 13F portfolio. Pennant Capital Management is also relatively very bullish on the stock, setting aside 2.04 percent of its 13F equity portfolio to CAE.

As aggregate interest increased, key hedge funds have jumped into CAE, Inc. (NYSE:CAE) headfirst. Goodnow Investment Group, managed by Edward Goodnow, established the largest position in CAE, Inc. (NYSE:CAE). Goodnow Investment Group had $6.9 million invested in the company at the end of the quarter. Alan Fournier’s Pennant Capital Management also made a $5.7 million investment in the stock during the quarter. The following funds were also among the new CAE investors: Baker Burleson and Stormy Scott’s Banbury Partners, Greg Eisner’s Engineers Gate Manager, and Israel Englander’s Millennium Management.

Let’s go over hedge fund activity in other stocks similar to CAE, Inc. (NYSE:CAE). These stocks are QTS Realty Trust Inc (NYSE:QTS), Stag Industrial Inc (NYSE:STAG), Grupo Televisa SAB (NYSE:TV), and Mirati Therapeutics, Inc. (NASDAQ:MRTX). This group of stocks’ market values are similar to CAE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QTS 21 365837 -2
STAG 15 79203 -3
TV 19 481852 0
MRTX 33 1122981 1
Average 22 512468 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $79 million in CAE’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand Stag Industrial Inc (NYSE:STAG) is the least popular one with only 15 bullish hedge fund positions. CAE, Inc. (NYSE:CAE) 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 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately CAE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CAE investors were disappointed as the stock returned 17.1% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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