Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. 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 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Cumulus Media Inc (NASDAQ:CMLS) investors should be aware of a decrease in hedge fund interest recently. Our calculations also showed that CMLS isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We’re going to take a look at the recent hedge fund action encompassing Cumulus Media Inc (NASDAQ:CMLS).
How have hedgies been trading Cumulus Media Inc (NASDAQ:CMLS)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in CMLS a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Cumulus Media Inc (NASDAQ:CMLS) was held by Brigade Capital, which reported holding $43.9 million worth of stock at the end of March. It was followed by Silver Point Capital with a $39.5 million position. Other investors bullish on the company included Beach Point Capital Management, Angelo Gordon & Co, and Ancora Advisors.
Because Cumulus Media Inc (NASDAQ:CMLS) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of funds who were dropping their entire stakes in the second quarter. Intriguingly, Jody LaNasa’s Serengeti Asset Management dropped the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling close to $223.1 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $3.1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds in the second quarter.
Let’s go over hedge fund activity in other stocks similar to Cumulus Media Inc (NASDAQ:CMLS). These stocks are DSP Group, Inc. (NASDAQ:DSPG), Drive Shack Inc. (NYSE:DS), RTI Surgical Holdings, Inc. (NASDAQ:RTIX), and Rayonier Advanced Materials Inc (NYSE:RYAM). All of these stocks’ market caps match CMLS’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 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $118 million in CMLS’s case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand Drive Shack Inc. (NYSE:DS) is the least popular one with only 8 bullish hedge fund positions. Cumulus Media Inc (NASDAQ:CMLS) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CMLS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CMLS investors were disappointed as the stock returned -21.6% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.