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Hedge Funds Are Cashing Out Of Cubic Corporation (CUB)

In this article we will check out the progression of hedge fund sentiment towards Cubic Corporation (NYSE:CUB) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Cubic Corporation (NYSE:CUB) has experienced a decrease in enthusiasm from smart money of late. Our calculations also showed that CUB 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).

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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 interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the recent hedge fund action regarding Cubic Corporation (NYSE:CUB).

Hedge fund activity in Cubic Corporation (NYSE:CUB)

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in CUB a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Value Holdings LP held the most valuable stake in Cubic Corporation (NYSE:CUB), which was worth $4.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $4 million worth of shares. D E Shaw, Hudson Bay Capital Management, and Skylands Capital 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 Value Holdings LP allocated the biggest weight to Cubic Corporation (NYSE:CUB), around 2.17% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, dishing out 0.52 percent of its 13F equity portfolio to CUB.

Judging by the fact that Cubic Corporation (NYSE:CUB) has faced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their full holdings in the first quarter. Intriguingly, James Dinan’s York Capital Management cut the biggest investment of all the hedgies followed by Insider Monkey, comprising about $12.3 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also sold off its stock, about $11.4 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cubic Corporation (NYSE:CUB) but similarly valued. We will take a look at Avanos Medical, Inc. (NYSE:AVNS), Core-Mark Holding Company, Inc. (NASDAQ:CORE), Innovative Industrial Properties, Inc. (NYSE:IIPR), and Revolution Medicines, Inc. (NASDAQ:RVMD). This group of stocks’ market caps match CUB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVNS 16 83135 8
CORE 19 24155 3
IIPR 14 99011 -2
RVMD 20 223473 20
Average 17.25 107444 7.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $21 million in CUB’s case. Revolution Medicines, Inc. (NASDAQ:RVMD) is the most popular stock in this table. On the other hand Innovative Industrial Properties, Inc. (NYSE:IIPR) is the least popular one with only 14 bullish hedge fund positions. Cubic Corporation (NYSE:CUB) 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately CUB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CUB investors were disappointed as the stock returned 11.5% during the second 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 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.