Is Canadian Pacific Railway Limited (CP) Going to Burn These Hedge Funds?

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Canadian Pacific Railway Limited (NYSE:CP) makes for a good investment right now.

Canadian Pacific Railway Limited (NYSE:CP) was in 33 hedge funds’ portfolios at the end of March. The all time high for this statistic is 40. CP has experienced an increase in enthusiasm from smart money of late. There were 24 hedge funds in our database with CP positions at the end of the fourth quarter. Our calculations also showed that CP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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Do Hedge Funds Think CP Is A Good Stock To Buy Now?

At first quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in CP a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in Canadian Pacific Railway Limited (NYSE:CP) was held by TCI Fund Management, which reported holding $4260.7 million worth of stock at the end of December. It was followed by Egerton Capital Limited with a $1280.1 million position. Other investors bullish on the company included Echo Street Capital Management, Locust Wood Capital Advisers, and Athanor Capital. In terms of the portfolio weights assigned to each position TCI Fund Management allocated the biggest weight to Canadian Pacific Railway Limited (NYSE:CP), around 12.37% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, designating 6.82 percent of its 13F equity portfolio to CP.

As aggregate interest increased, key money managers have been driving this bullishness. Skye Global Management, managed by Jaime Sterne, assembled the biggest position in Canadian Pacific Railway Limited (NYSE:CP). Skye Global Management had $22 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $19.6 million position during the quarter. The following funds were also among the new CP investors: Steve Pigott’s Fort Baker Capital Management, Mark Kingdon’s Kingdon Capital, and Crispin Odey’s Odey Asset Management Group.

Let’s now review hedge fund activity in other stocks similar to Canadian Pacific Railway Limited (NYSE:CP). These stocks are Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), The Kraft Heinz Company (NASDAQ:KHC), Relx PLC (NYSE:RELX), Dollar General Corp. (NYSE:DG), Keurig Dr Pepper Inc. (NASDAQ:KDP), Newmont Corporation (NYSE:NEM), and Monster Beverage Corp (NASDAQ:MNST). This group of stocks’ market valuations match CP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SMFG 14 88068 4
KHC 33 13334618 -3
RELX 4 85198 -4
DG 52 2341556 -5
KDP 30 934902 1
NEM 43 994802 -7
MNST 45 2382495 1
Average 31.6 2880234 -1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $2880 million. That figure was $5908 million in CP’s case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 4 bullish hedge fund positions. Canadian Pacific Railway Limited (NYSE:CP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CP is 65. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and beat the market again by 6 percentage points. Unfortunately CP wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CP were disappointed as the stock returned 2.5% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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