Is CAJ A Good Stock To Buy Now?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Canon Inc. (NYSE:CAJ) based on that data.

Is CAJ a good stock to buy now? The smart money was taking a pessimistic view. The number of long hedge fund bets shrunk by 2 recently. Canon Inc. (NYSE:CAJ) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 11. Our calculations also showed that CAJ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 66 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a look at the fresh hedge fund action surrounding Canon Inc. (NYSE:CAJ).

How have hedgies been trading Canon Inc. (NYSE:CAJ)?

At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CAJ over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Canon Inc. (NYSE:CAJ), which was worth $33.5 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $15.9 million worth of shares. LMR Partners, Citadel Investment Group, and Balyasny Asset Management 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 LMR Partners allocated the biggest weight to Canon Inc. (NYSE:CAJ), around 0.05% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to CAJ.

Since Canon Inc. (NYSE:CAJ) has faced bearish sentiment from the smart money, it’s safe to say that there were a few hedge funds who sold off their full holdings heading into Q4. Intriguingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $2 million in stock. D. E. Shaw’s fund, D E Shaw, also cut its stock, about $0.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Canon Inc. (NYSE:CAJ). These stocks are Amcor plc (NYSE:AMCR), Deutsche Bank AG (NYSE:DB), ViacomCBS Inc. (NASDAQ:VIAC), Hologic, Inc. (NASDAQ:HOLX), PT Telekomunikasi Indonesia (NYSE:TLK), Smith & Nephew plc (NYSE:SNN), and Horizon Therapeutics Public Limited Company (NASDAQ:HZNP). This group of stocks’ market values match CAJ’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $1141 million. That figure was $53 million in CAJ’s case. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Canon Inc. (NYSE:CAJ) is even less popular than TLK. Our overall hedge fund sentiment score for CAJ is 22.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on CAJ as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on CAJ as the stock returned 12.8% since Q3 (through December 2nd) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.