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Hedge Funds Are Betting On Cognex Corporation (CGNX)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Cognex Corporation (NASDAQ:CGNX).

Is Cognex Corporation (NASDAQ:CGNX) a splendid investment right now? The best stock pickers are getting more bullish. The number of bullish hedge fund positions went up by 5 recently. Our calculations also showed that CGNX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CGNX was in 18 hedge funds’ portfolios at the end of September. There were 13 hedge funds in our database with CGNX positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Managemnet

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. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the recent hedge fund action surrounding Cognex Corporation (NASDAQ:CGNX).

What does smart money think about Cognex Corporation (NASDAQ:CGNX)?

Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in CGNX a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Royce & Associates was the largest shareholder of Cognex Corporation (NASDAQ:CGNX), with a stake worth $53.1 million reported as of the end of September. Trailing Royce & Associates was Polar Capital, which amassed a stake valued at $38.7 million. PDT Partners, AQR Capital Management, and Balyasny Asset Management 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 PDT Partners allocated the biggest weight to Cognex Corporation (NASDAQ:CGNX), around 1.38% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, designating 0.94 percent of its 13F equity portfolio to CGNX.

Now, key hedge funds were breaking ground themselves. Gotham Asset Management, managed by Joel Greenblatt, established the most valuable position in Cognex Corporation (NASDAQ:CGNX). Gotham Asset Management had $2.5 million invested in the company at the end of the quarter. James Dondero’s Highland Capital Management also initiated a $1.7 million position during the quarter. The other funds with brand new CGNX positions are John Overdeck and David Siegel’s Two Sigma Advisors, Donald Sussman’s Paloma Partners, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cognex Corporation (NASDAQ:CGNX) but similarly valued. These stocks are News Corporation (NASDAQ:NWS), Avantor, Inc. (NYSE:AVTR), The Interpublic Group of Companies, Inc. (NYSE:IPG), and Dropbox, Inc. (NASDAQ:DBX). All of these stocks’ market caps are closest to CGNX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWS 11 33867 2
AVTR 26 524476 -4
IPG 24 755230 -8
DBX 38 977930 -5
Average 24.75 572876 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $573 million. That figure was $179 million in CGNX’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand News Corporation (NASDAQ:NWS) is the least popular one with only 11 bullish hedge fund positions. Cognex Corporation (NASDAQ:CGNX) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CGNX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CGNX investors were disappointed as the stock returned 2.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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