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Do Hedge Funds Love CSX Corporation (CSX)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in CSX Corporation (NASDAQ:CSX)? The smart money sentiment can provide an answer to this question.

Is CSX Corporation (NASDAQ:CSX) a worthy investment now? Investors who are in the know are turning bullish. The number of bullish hedge fund bets rose by 5 in recent months. Our calculations also showed that CSX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a glance at the latest hedge fund action surrounding CSX Corporation (NASDAQ:CSX).

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

At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. By comparison, 50 hedge funds held shares or bullish call options in CSX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in CSX Corporation (NASDAQ:CSX) was held by Soroban Capital Partners, which reported holding $497.3 million worth of stock at the end of September. It was followed by Steadfast Capital Management with a $346.6 million position. Other investors bullish on the company included Renaissance Technologies, Fisher Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Soroban Capital Partners allocated the biggest weight to CSX Corporation (NASDAQ:CSX), around 6.52% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, earmarking 4.51 percent of its 13F equity portfolio to CSX.

As aggregate interest increased, some big names were breaking ground themselves. Soroban Capital Partners, managed by Eric W. Mandelblatt and Gaurav Kapadia, assembled the biggest position in CSX Corporation (NASDAQ:CSX). Soroban Capital Partners had $497.3 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $3.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Jinghua Yan’s TwinBeech Capital, and Qing Li’s Sciencast Management.

Let’s now review hedge fund activity in other stocks similar to CSX Corporation (NASDAQ:CSX). These stocks are Eni SpA (NYSE:E), Marsh & McLennan Companies, Inc. (NYSE:MMC), Applied Materials, Inc. (NASDAQ:AMAT), and Schlumberger Limited. (NYSE:SLB). This group of stocks’ market caps resemble CSX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
E 6 45145 0
MMC 31 649419 3
AMAT 72 3452552 17
SLB 47 1207839 -6
Average 39 1338739 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1339 million. That figure was $2346 million in CSX’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 6 bullish hedge fund positions. CSX Corporation (NASDAQ:CSX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately CSX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CSX were disappointed as the stock returned -16.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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