Is CAT A Good Stock To Buy Now?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Caterpillar Inc. (NYSE:CAT) changed recently.

Is CAT a good stock to buy now? Hedge funds were getting more bullish. The number of bullish hedge fund bets rose by 2 recently. Caterpillar Inc. (NYSE:CAT) was in 41 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 63. Our calculations also showed that CAT 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.

In the 21st century investor’s toolkit there are dozens of metrics investors have at their disposal to appraise stocks. Some of the less utilized metrics are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outperform their index-focused peers by a solid amount (see the details here).

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 we’re going to take a gander at the latest hedge fund action encompassing Caterpillar Inc. (NYSE:CAT).

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

At the end of September, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in CAT a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Bill & Melinda Gates Foundation Trust was the largest shareholder of Caterpillar Inc. (NYSE:CAT), with a stake worth $1679.6 million reported as of the end of September. Trailing Bill & Melinda Gates Foundation Trust was Fisher Asset Management, which amassed a stake valued at $893.9 million. Citadel Investment Group, Diamond Hill Capital, and PEAK6 Capital 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to Caterpillar Inc. (NYSE:CAT), around 7.61% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, designating 7.02 percent of its 13F equity portfolio to CAT.

As industrywide interest jumped, some big names were leading the bulls’ herd. Diamond Hill Capital, managed by Ric Dillon, assembled the biggest position in Caterpillar Inc. (NYSE:CAT). Diamond Hill Capital had $161.9 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $12.6 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Caterpillar Inc. (NYSE:CAT) but similarly valued. We will take a look at American Express Company (NYSE:AXP), Diageo plc (NYSE:DEO), HSBC Holdings plc (NYSE:HSBC), Gilead Sciences, Inc. (NASDAQ:GILD), The Estee Lauder Companies Inc (NYSE:EL), Target Corporation (NYSE:TGT), and Zoetis Inc (NYSE:ZTS). This group of stocks’ market values resemble CAT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AXP 48 18577515 -6
DEO 19 466316 -1
HSBC 10 276252 0
GILD 61 1989449 -7
EL 46 1518782 0
TGT 57 3952738 3
ZTS 58 2248300 0
Average 42.7 4147050 -1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.7 hedge funds with bullish positions and the average amount invested in these stocks was $4147 million. That figure was $3058 million in CAT’s case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 10 bullish hedge fund positions. Caterpillar Inc. (NYSE:CAT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CAT is 56.9. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on CAT as the stock returned 20.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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