We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Cabot Microelectronics Corporation (NASDAQ:CCMP).
Is Cabot Microelectronics Corporation (NASDAQ:CCMP) worth your attention right now? Money managers are getting more optimistic. The number of bullish hedge fund positions advanced by 2 recently. Our calculations also showed that CCMP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the key hedge fund action encompassing Cabot Microelectronics Corporation (NASDAQ:CCMP).
How are hedge funds trading Cabot Microelectronics Corporation (NASDAQ:CCMP)?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in CCMP a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Cabot Microelectronics Corporation (NASDAQ:CCMP), with a stake worth $101.9 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $95.7 million. Adage Capital Management, Citadel Investment Group, and Carlson Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Cabot Microelectronics Corporation (NASDAQ:CCMP), around 0.94% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, earmarking 0.62 percent of its 13F equity portfolio to CCMP.
As aggregate interest increased, key hedge funds have been driving this bullishness. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the biggest position in Cabot Microelectronics Corporation (NASDAQ:CCMP). PEAK6 Capital Management had $1.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.4 million position during the quarter. The other funds with brand new CCMP positions are Frank Slattery’s Symmetry Peak Management and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s go over hedge fund activity in other stocks similar to Cabot Microelectronics Corporation (NASDAQ:CCMP). These stocks are NCR Corporation (NYSE:NCR), Enstar Group Ltd. (NASDAQ:ESGR), Gold Fields Limited (NYSE:GFI), and Azul S.A. (NYSE:AZUL). All of these stocks’ market caps resemble CCMP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NCR | 31 | 284836 | 7 |
| ESGR | 12 | 415383 | 2 |
| GFI | 17 | 282757 | 3 |
| AZUL | 12 | 134406 | -1 |
| Average | 18 | 279346 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $279 million. That figure was $349 million in CCMP’s case. NCR Corporation (NYSE:NCR) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 12 bullish hedge fund positions. Cabot Microelectronics Corporation (NASDAQ:CCMP) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CCMP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CCMP investors were disappointed as the stock returned -5.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
