At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Conduent Incorporated (NASDAQ:CNDT) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Conduent Incorporated (NASDAQ:CNDT) going to take off soon? Investors who are in the know were betting on the stock. The number of long hedge fund bets inched up by 3 recently. Conduent Incorporated (NASDAQ:CNDT) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 45. Our calculations also showed that CNDT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s review the recent hedge fund action encompassing Conduent Incorporated (NASDAQ:CNDT).
Hedge fund activity in Conduent Incorporated (NASDAQ:CNDT)
Heading into the third quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CNDT over the last 20 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Icahn Capital LP was the largest shareholder of Conduent Incorporated (NASDAQ:CNDT), with a stake worth $91.2 million reported as of the end of September. Trailing Icahn Capital LP was D E Shaw, which amassed a stake valued at $14.5 million. Renaissance Technologies, Iridian Asset Management, and Two Sigma Advisors 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 Icahn Capital LP allocated the biggest weight to Conduent Incorporated (NASDAQ:CNDT), around 0.46% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to CNDT.
Consequently, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Conduent Incorporated (NASDAQ:CNDT). Arrowstreet Capital had $3.2 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.6 million position during the quarter. The other funds with brand new CNDT positions are John W. Moon’s Moon Capital, Donald Sussman’s Paloma Partners, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s go over hedge fund activity in other stocks similar to Conduent Incorporated (NASDAQ:CNDT). We will take a look at HarborOne Bancorp, Inc. (NASDAQ:HONE), TORM plc (NASDAQ:TRMD), Bank First Corporation (NASDAQ:BFC), Consolidated Communications Holdings Inc (NASDAQ:CNSL), Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM), World Acceptance Corp. (NASDAQ:WRLD), and QCR Holdings, Inc. (NASDAQ:QCRH). This group of stocks’ market caps resemble CNDT’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.4 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $150 million in CNDT’s case. HarborOne Bancorp, Inc. (NASDAQ:HONE) is the most popular stock in this table. On the other hand Bank First Corporation (NASDAQ:BFC) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Conduent Incorporated (NASDAQ:CNDT) is more popular among hedge funds. Our overall hedge fund sentiment score for CNDT is 72. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on CNDT as the stock returned 33.1% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.