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Did Hedge Funds Make The Right Call On Curtiss-Wright Corp. (CW) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Curtiss-Wright Corp. (NYSE:CW) and determine whether hedge funds had an edge regarding this stock.

Is Curtiss-Wright Corp. (NYSE:CW) going to take off soon? The best stock pickers were getting less bullish. The number of long hedge fund bets shrunk by 1 recently. Our calculations also showed that CW 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). CW was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with CW holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most traders, hedge funds are seen as unimportant, old investment tools of the past. While there are more than 8000 funds with their doors open at the moment, We choose to focus on the aristocrats of this group, approximately 850 funds. Most estimates calculate that this group of people oversee bulk of the smart money’s total capital, and by tracking their finest stock picks, Insider Monkey has revealed a few investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. Now let’s view the key hedge fund action encompassing Curtiss-Wright Corp. (NYSE:CW).

How are hedge funds trading Curtiss-Wright Corp. (NYSE:CW)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in CW a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Curtiss-Wright Corp. (NYSE:CW), with a stake worth $82.3 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $48.1 million. GAMCO Investors, GLG Partners, and D E Shaw 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 Jade Capital Advisors allocated the biggest weight to Curtiss-Wright Corp. (NYSE:CW), around 5.14% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.44 percent of its 13F equity portfolio to CW.

Because Curtiss-Wright Corp. (NYSE:CW) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that elected to cut their full holdings last quarter. Intriguingly, Lee Ainslie’s Maverick Capital cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $1.4 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $0.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Curtiss-Wright Corp. (NYSE:CW). We will take a look at MSA Safety Incorporated (NYSE:MSA), Coty Inc (NYSE:COTY), Hudson Pacific Properties Inc (NYSE:HPP), and US Foods Holding Corp. (NYSE:USFD). This group of stocks’ market caps resemble CW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MSA 11 26188 -4
COTY 33 183298 4
HPP 19 231967 0
USFD 33 507135 -4
Average 24 237147 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $257 million in CW’s case. Coty Inc (NYSE:COTY) is the most popular stock in this table. On the other hand MSA Safety Incorporated (NYSE:MSA) is the least popular one with only 11 bullish hedge fund positions. Curtiss-Wright Corp. (NYSE:CW) 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 CW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CW investors were disappointed as the stock returned -2.4% 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.