How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generate strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cisco Systems, Inc. (NASDAQ:CSCO).
Cisco Systems, Inc. (NASDAQ:CSCO) was in 67 hedge funds’ portfolios at the end of the third quarter of 2015. CSCO has experienced a decrease in enthusiasm from smart money in recent months. There were 72 hedge funds in our database with CSCO holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as PetroChina Company Limited (ADR) (NYSE:PTR), Reynolds American, Inc. (NYSE:RAI), and Sanofi SA (ADR) (NYSE:SNY) to gather more data points.
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How are hedge funds trading Cisco Systems, Inc. (NASDAQ:CSCO)?
Heading into Q4, a total of 67 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 7% drop from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Yacktman Asset Management, managed by Donald Yacktman, holds the number one position in Cisco Systems, Inc. (NASDAQ:CSCO). Yacktman Asset Management has a $948 million position in the stock, comprising 6.2% of its 13F portfolio. Sitting in the 2-hole is First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, which holds a $418.1 million position; 3.6% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism include Ken Fisher’s Fisher Asset Management, Cliff Asness’ AQR Capital Management, and Kerr Neilson’s Platinum Asset Management.
Judging by the fact that Cisco Systems, Inc. (NASDAQ:CSCO) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of hedgies that slashed their positions entirely heading into Q4. At the top of the heap, Gordy Holterman and Derek Dunn’s Overland Advisors dropped the largest position of all the hedgies watched by Insider Monkey, totaling an estimated $41.2 million in stock. Matthew Knauer and Mina Faltas’ fund, Nokota Management, also sold off its stock, about $33 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cisco Systems, Inc. (NASDAQ:CSCO) but similarly valued. These stocks are PetroChina Company Limited (ADR) (NYSE:PTR), Reynolds American, Inc. (NYSE:RAI), Sanofi SA (ADR) (NYSE:SNY), and Philip Morris International Inc. (NYSE:PM). This group of stocks’ market valuations are closest to CSCO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PTR | 10 | 141088 | -2 |
| RAI | 33 | 1947876 | -8 |
| SNY | 30 | 971198 | -1 |
| PM | 42 | 3128982 | 1 |
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.55 billion. That figure was $4.24 billion in CSCO’s case. Philip Morris International Inc. (NYSE:PM) is the most popular stock in this table. On the other hand PetroChina Company Limited (ADR) (NYSE:PTR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Cisco Systems, Inc. (NASDAQ:CSCO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and have a lot of their capital held in it, it may be a good idea to analyze the stock in detail and potentially include it in your portfolio.
