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Hedge Funds Have Never Been More Bullish On Cabot Corporation (CBT)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Cabot Corporation (NYSE:CBT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Cabot Corporation (NYSE:CBT) has seen an increase in hedge fund interest recently. CBT was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 21 hedge funds in our database with CBT holdings at the end of the previous quarter. Our calculations also showed that CBT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

If you’d ask most stock holders, hedge funds are viewed as worthless, outdated investment vehicles of the past. While there are greater than 8000 funds trading at the moment, Our experts choose to focus on the crème de la crème of this club, approximately 850 funds. These investment experts oversee bulk of all hedge funds’ total capital, and by keeping an eye on their first-class equity investments, Insider Monkey has brought to light a number of investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the recent hedge fund action regarding Cabot Corporation (NYSE:CBT).

How are hedge funds trading Cabot Corporation (NYSE:CBT)?

Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in CBT a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Cabot Corporation (NYSE:CBT) was held by AQR Capital Management, which reported holding $40.5 million worth of stock at the end of September. It was followed by First Pacific Advisors LLC with a $31.7 million position. Other investors bullish on the company included GLG Partners, Two Sigma Advisors, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cruiser Capital Advisors allocated the biggest weight to Cabot Corporation (NYSE:CBT), around 1.23% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, setting aside 1.23 percent of its 13F equity portfolio to CBT.

Consequently, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Cabot Corporation (NYSE:CBT). Arrowstreet Capital had $11 million invested in the company at the end of the quarter. Renaissance Technologies also made a $4.2 million investment in the stock during the quarter. The other funds with brand new CBT positions are Ali Motamed’s Invenomic Capital Management, Michael Gelband’s ExodusPoint Capital, and David Harding’s Winton Capital Management.

Let’s now review hedge fund activity in other stocks similar to Cabot Corporation (NYSE:CBT). We will take a look at Rattler Midstream LP (NASDAQ:RTLR), Lexington Realty Trust (NYSE:LXP), Granite Real Estate Investment Trust (NYSE:GRP), and Mercury General Corporation (NYSE:MCY). All of these stocks’ market caps resemble CBT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RTLR 8 116513 -3
LXP 14 61204 -1
GRP 7 47205 -4
MCY 21 196767 0
Average 12.5 105422 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $140 million in CBT’s case. Mercury General Corporation (NYSE:MCY) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Cabot Corporation (NYSE:CBT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately CBT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CBT were disappointed as the stock returned -44.5% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
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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