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Hedge Fund Darlings vs. CSX Corporation (CSX) In 2019

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is CSX Corporation (NYSE:CSX) an attractive investment today? The smart money is becoming less confident. The number of bullish hedge fund bets were cut by 8 lately. Our calculations also showed that CSX 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).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. With all of this in mind we’re going to take a look at the new hedge fund action regarding CSX Corporation (NYSE:CSX).

Hedge fund activity in CSX Corporation (NYSE:CSX)

At Q3’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 54 hedge funds with a bullish position in CSX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CSX A Good Stock To Buy?

The largest stake in CSX Corporation (NYSE:CSX) was held by Mantle Ridge LP, which reported holding $2636.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $283.4 million position. Other investors bullish on the company included Steadfast Capital Management, Renaissance Technologies, and Chilton Investment Company. In terms of the portfolio weights assigned to each position Mantle Ridge LP allocated the biggest weight to CSX Corporation (NYSE:CSX), around 96.19% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, setting aside 4.22 percent of its 13F equity portfolio to CSX.

Seeing as CSX Corporation (NYSE:CSX) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedgies that decided to sell off their positions entirely in the third quarter. Interestingly, John Armitage’s Egerton Capital Limited said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $513.4 million in stock, and Aaron Cowen’s Suvretta Capital Management was right behind this move, as the fund dumped about $54.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 8 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to CSX Corporation (NYSE:CSX). These stocks are Allergan plc (NYSE:AGN), Charles Schwab Corp (NYSE:SCHW), Raytheon Company (NYSE:RTN), and Target Corporation (NYSE:TGT). This group of stocks’ market valuations are similar to CSX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AGN 81 8207290 1
SCHW 52 3125721 4
RTN 49 3254934 10
TGT 53 2073012 16
Average 58.75 4165239 7.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.75 hedge funds with bullish positions and the average amount invested in these stocks was $4165 million. That figure was $4003 million in CSX’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Raytheon Company (NYSE:RTN) is the least popular one with only 49 bullish hedge fund positions. Compared to these stocks CSX Corporation (NYSE:CSX) is even less popular than RTN. Hedge funds dodged a bullet by taking a bearish stance towards CSX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CSX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CSX investors were disappointed as the stock returned 18.6% in 2019 (through December 23rd) 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 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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