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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Cypress Semiconductor Corporation (NASDAQ:CY).
Cypress Semiconductor Corporation (NASDAQ:CY) investors should be aware of an increase in hedge fund interest recently. CY was in 36 hedge funds’ portfolios at the end of December. There were 35 hedge funds in our database with CY positions at the end of the previous quarter. Our calculations also showed that CY 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Matthew Halbower of Pentwater Capital
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. With all of this in mind we’re going to review the new hedge fund action surrounding Cypress Semiconductor Corporation (NASDAQ:CY).
How are hedge funds trading Cypress Semiconductor Corporation (NASDAQ:CY)?
At Q4’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in CY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cypress Semiconductor Corporation (NASDAQ:CY) was held by Pentwater Capital Management, which reported holding $219 million worth of stock at the end of September. It was followed by Carlson Capital with a $212 million position. Other investors bullish on the company included Magnetar Capital, TIG Advisors, and Alpine Associates. In terms of the portfolio weights assigned to each position One68 Global Capital allocated the biggest weight to Cypress Semiconductor Corporation (NASDAQ:CY), around 11.08% of its 13F portfolio. TIG Advisors is also relatively very bullish on the stock, earmarking 9.15 percent of its 13F equity portfolio to CY.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Segantii Capital, managed by Simon Sadler, assembled the largest position in Cypress Semiconductor Corporation (NASDAQ:CY). Segantii Capital had $56.7 million invested in the company at the end of the quarter. Farallon Capital also initiated a $19.6 million position during the quarter. The following funds were also among the new CY investors: Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, John Overdeck and David Siegel’s Two Sigma Advisors, and David Nguyen and Nancy Oh’s One68 Global Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cypress Semiconductor Corporation (NASDAQ:CY) but similarly valued. These stocks are PTC Inc (NASDAQ:PTC), Zendesk Inc (NYSE:ZEN), Sensata Technologies Holding N.V. (NYSE:ST), and News Corp (NASDAQ:NWS). This group of stocks’ market valuations resemble CY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PTC | 35 | 1101313 | 5 |
| ZEN | 61 | 1843205 | 14 |
| ST | 23 | 1309456 | 0 |
| NWS | 7 | 31884 | -5 |
| Average | 31.5 | 1071465 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1071 million. That figure was $1441 million in CY’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 7 bullish hedge fund positions. Cypress Semiconductor Corporation (NASDAQ:CY) is not the most popular stock in this group but hedge fund interest is still above average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on CY as the stock returned -8.6% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
