In this article we are going to use hedge fund sentiment as a tool and determine whether Carnival Corporation & plc (NYSE:CUK) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is CUK a good stock to buy now? Prominent investors were becoming less confident. The number of long hedge fund bets were trimmed by 1 recently. Carnival Corporation & plc (NYSE:CUK) was in 13 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 14. Our calculations also showed that CUK 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 cannabis tech 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 let’s take a look at the recent hedge fund action surrounding Carnival Corporation & plc (NYSE:CUK).
Do Hedge Funds Think CUK Is A Good Stock To Buy Now?
At third quarter’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2020. By comparison, 11 hedge funds held shares or bullish call options in CUK a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Aristeia Capital held the most valuable stake in Carnival Corporation & plc (NYSE:CUK), which was worth $70 million at the end of the third quarter. On the second spot was Fir Tree which amassed $34.1 million worth of shares. Millennium Management, Renaissance Technologies, and Citadel Investment Group 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 Ariose Capital allocated the biggest weight to Carnival Corporation & plc (NYSE:CUK), around 4.21% of its 13F portfolio. Aristeia Capital is also relatively very bullish on the stock, dishing out 2.93 percent of its 13F equity portfolio to CUK.
Since Carnival Corporation & plc (NYSE:CUK) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that elected to cut their entire stakes last quarter. Intriguingly, D. E. Shaw’s D E Shaw sold off the biggest position of the 750 funds watched by Insider Monkey, worth an estimated $5.7 million in stock. Sander Gerber’s fund, Hudson Bay Capital Management, also dumped its stock, about $1.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Carnival Corporation & plc (NYSE:CUK) but similarly valued. We will take a look at Chegg Inc (NYSE:CHGG), Fidelity National Financial Inc (NYSE:FNF), Allegion plc (NYSE:ALLE), Universal Health Services, Inc. (NYSE:UHS), IPG Photonics Corporation (NASDAQ:IPGP), WestRock Company (NYSE:WRK), and Caesars Entertainment Corp (NASDAQ:CZR). All of these stocks’ market caps match CUK’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 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $782 million. That figure was $143 million in CUK’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand IPG Photonics Corporation (NASDAQ:IPGP) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Carnival Corporation & plc (NYSE:CUK) is even less popular than IPGP. Our overall hedge fund sentiment score for CUK is 31.9. 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. Hedge funds clearly dropped the ball on CUK 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 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 CUK as the stock returned 57.4% since Q3 (through December 8th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.