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Hedge Fund Darlings vs. Cisco Systems, Inc. (CSCO) In 2019

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Cisco Systems, Inc. (NASDAQ:CSCO) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

Is Cisco Systems, Inc. (NASDAQ:CSCO) undervalued? The best stock pickers are taking a bullish view. The number of bullish hedge fund bets inched up by 3 lately. Our calculations also showed that CSCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). CSCO was in 58 hedge funds’ portfolios at the end of the third quarter of 2019. There were 55 hedge funds in our database with CSCO holdings at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Donald Yacktman of Yacktman Asset Management

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s take a peek at the recent hedge fund action surrounding Cisco Systems, Inc. (NASDAQ:CSCO).

What have hedge funds been doing with Cisco Systems, Inc. (NASDAQ:CSCO)?

At Q3’s end, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2019. On the other hand, there were a total of 58 hedge funds with a bullish position in CSCO 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.

According to Insider Monkey’s hedge fund database, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Cisco Systems, Inc. (NASDAQ:CSCO). Fisher Asset Management has a $1.5078 billion position in the stock, comprising 1.7% of its 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $723.8 million position; 0.9% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish consist of John Overdeck and David Siegel’s Two Sigma Advisors, Phill Gross and Robert Atchinson’s Adage Capital Management and Donald Yacktman’s Yacktman Asset Management. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to Cisco Systems, Inc. (NASDAQ:CSCO), around 4.61% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, setting aside 2.73 percent of its 13F equity portfolio to CSCO.

Now, specific money managers were leading the bulls’ herd. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, established the biggest position in Cisco Systems, Inc. (NASDAQ:CSCO). Voleon Capital had $17.4 million invested in the company at the end of the quarter. Kenneth Tropin’s Graham Capital Management also initiated a $8.6 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Donald Sussman’s Paloma Partners, and Ray Dalio’s Bridgewater Associates.

Let’s also examine hedge fund activity in other stocks similar to Cisco Systems, Inc. (NASDAQ:CSCO). We will take a look at UnitedHealth Group Inc. (NYSE:UNH), Comcast Corporation (NASDAQ:CMCSA), Novartis AG (NYSE:NVS), and Pfizer Inc. (NYSE:PFE). This group of stocks’ market valuations resemble CSCO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNH 77 5610847 9
CMCSA 82 6384615 -4
NVS 28 1708118 -2
PFE 55 3767946 3
Average 60.5 4367882 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 60.5 hedge funds with bullish positions and the average amount invested in these stocks was $4368 million. That figure was $4154 million in CSCO’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 28 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CSCO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CSCO investors were disappointed as the stock returned 14.1% in 2019 (as of 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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