Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CF Industries Holdings, Inc. (NYSE:CF).
CF Industries Holdings, Inc. (NYSE:CF) investors should be aware of a decrease in enthusiasm from smart money recently. Our calculations also showed that CF isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s analyze the fresh hedge fund action encompassing CF Industries Holdings, Inc. (NYSE:CF).
How have hedgies been trading CF Industries Holdings, Inc. (NYSE:CF)?
Heading into the second quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in CF a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in CF Industries Holdings, Inc. (NYSE:CF) was held by Eminence Capital, which reported holding $163.2 million worth of stock at the end of March. It was followed by Glendon Capital Management with a $119.8 million position. Other investors bullish on the company included Platinum Asset Management, AQR Capital Management, and Columbus Hill Capital Management.
Because CF Industries Holdings, Inc. (NYSE:CF) has witnessed falling interest from hedge fund managers, we can see that there is a sect of hedge funds who sold off their entire stakes in the third quarter. Intriguingly, David Greenspan’s Slate Path Capital cut the biggest position of all the hedgies tracked by Insider Monkey, worth close to $68.1 million in stock. Principal Global Investors’s fund, Columbus Circle Investors, also sold off its stock, about $31.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 10 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to CF Industries Holdings, Inc. (NYSE:CF). We will take a look at Henry Schein, Inc. (NASDAQ:HSIC), Huaneng Power International Inc (NYSE:HNP), Levi Strauss & Co. (NYSE:LEVI), and Torchmark Corporation (NYSE:TMK). This group of stocks’ market values resemble CF’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 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $538 million. That figure was $764 million in CF’s case. Levi Strauss & Co. (NYSE:LEVI) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks CF Industries Holdings, Inc. (NYSE:CF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CF, though not to the same extent, as the stock returned 0% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.