Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Cambrex Corporation (NYSE:CBM).
Cambrex Corporation (NYSE:CBM) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of March. 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 Gibraltar Industries Inc (NASDAQ:ROCK), Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA), and Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW) to gather more data points.
To most shareholders, hedge funds are perceived as underperforming, old investment tools of years past. While there are greater than 8000 funds trading at the moment, Our researchers hone in on the bigwigs of this club, around 750 funds. It is estimated that this group of investors oversee the lion’s share of the hedge fund industry’s total asset base, and by keeping an eye on their inimitable stock picks, Insider Monkey has unearthed several investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
We’re going to take a look at the key hedge fund action surrounding Cambrex Corporation (NYSE:CBM).
How are hedge funds trading Cambrex Corporation (NYSE:CBM)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in CBM a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Millennium Management, managed by Israel Englander, holds the most valuable position in Cambrex Corporation (NYSE:CBM). Millennium Management has a $9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Millennium Management’s heels is Royce & Associates, led by Chuck Royce, holding a $7 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions consist of Jim Simons’s Renaissance Technologies, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group.
Judging by the fact that Cambrex Corporation (NYSE:CBM) has faced falling interest from the smart money, it’s easy to see that there were a few funds that elected to cut their entire stakes last quarter. It’s worth mentioning that George McCabe’s Portolan Capital Management dumped the biggest position of the 700 funds monitored by Insider Monkey, totaling an estimated $2.5 million in stock. Alec Litowitz and Ross Laser’s fund, Magnetar Capital, also dumped its stock, about $1.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cambrex Corporation (NYSE:CBM) but similarly valued. These stocks are Gibraltar Industries Inc (NASDAQ:ROCK), Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA), Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW), and Realogy Holdings Corp (NYSE:RLGY). This group of stocks’ market values resemble CBM’s market value.
|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 17 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $33 million in CBM’s case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA) is the least popular one with only 7 bullish hedge fund positions. Cambrex Corporation (NYSE:CBM) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on CBM as the stock returned 11.8% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.