While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Canopy Growth Corporation (NASDAQ:CGC).
Is CGC a good stock to buy now? The smart money was getting less bullish. The number of bullish hedge fund positions were cut by 2 in recent months. Canopy Growth Corporation (NASDAQ:CGC) was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 16. Our calculations also showed that CGC 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.
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 S&P 500 ETFs by more than 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. 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.
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 15 best blue chip stocks 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 let’s take a look at the fresh hedge fund action encompassing Canopy Growth Corporation (NASDAQ:CGC).
Do Hedge Funds Think CGC Is A Good Stock To Buy Now?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CGC over the last 21 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Canopy Growth Corporation (NASDAQ:CGC), with a stake worth $8.9 million reported as of the end of September. Trailing Citadel Investment Group was OZ Management, which amassed a stake valued at $5.5 million. Citadel Investment Group, Balyasny Asset Management, and GLG Partners 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 Contrarius Investment Management allocated the biggest weight to Canopy Growth Corporation (NASDAQ:CGC), around 0.23% of its 13F portfolio. EMS Capital is also relatively very bullish on the stock, dishing out 0.1 percent of its 13F equity portfolio to CGC.
Judging by the fact that Canopy Growth Corporation (NASDAQ:CGC) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that elected to cut their positions entirely heading into Q4. Interestingly, Minhua Zhang’s Weld Capital Management dumped the largest investment of the 750 funds watched by Insider Monkey, totaling an estimated $0.7 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $0.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Canopy Growth Corporation (NASDAQ:CGC) but similarly valued. We will take a look at Woori Financial Group Inc. (NYSE:WF), Vivint Solar Inc (NYSE:VSLR), Levi Strauss & Co. (NYSE:LEVI), CDK Global Inc (NASDAQ:CDK), ServiceMaster Global Holdings Inc (NYSE:SERV), Phillips 66 Partners LP (NYSE:PSXP), and Thor Industries, Inc. (NYSE:THO). All of these stocks’ market caps are similar to CGC’s market cap.
|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 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $19 million in CGC’s case. Thor Industries, Inc. (NYSE:THO) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 2 bullish hedge fund positions. Canopy Growth Corporation (NASDAQ:CGC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CGC is 29.3. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CGC as the stock returned 101.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.