Is Cummins Inc. (CMI) Going to Burn These Hedge Funds?

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter of 2021. One of these stocks was Cummins Inc. (NYSE:CMI).

Cummins Inc. (NYSE:CMI) was in 37 hedge funds’ portfolios at the end of March. The all time high for this statistic is 49. CMI investors should be aware of a decrease in hedge fund sentiment recently. There were 45 hedge funds in our database with CMI positions at the end of the fourth quarter. Our calculations also showed that CMI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Today there are several indicators investors have at their disposal to evaluate stocks. A duo of the less utilized indicators are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the best fund managers can beat the S&P 500 by a healthy margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a gander at the recent hedge fund action regarding Cummins Inc. (NYSE:CMI).

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

Heading into the second quarter of 2021, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CMI over the last 23 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, AQR Capital Management was the largest shareholder of Cummins Inc. (NYSE:CMI), with a stake worth $294.2 million reported as of the end of March. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $145.5 million. Millennium Management, Duquesne Capital, 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 Socorro Asset Management allocated the biggest weight to Cummins Inc. (NYSE:CMI), around 4.29% of its 13F portfolio. Duquesne Capital is also relatively very bullish on the stock, earmarking 2.16 percent of its 13F equity portfolio to CMI.

Judging by the fact that Cummins Inc. (NYSE:CMI) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of money managers who sold off their entire stakes heading into Q2. Intriguingly, Richard Driehaus’s Driehaus Capital dumped the largest investment of all the hedgies followed by Insider Monkey, comprising close to $39.5 million in stock, and Robert Bishop’s Impala Asset Management was right behind this move, as the fund dumped about $24.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 8 funds heading into Q2.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cummins Inc. (NYSE:CMI) but similarly valued. These stocks are The Travelers Companies Inc (NYSE:TRV), DocuSign, Inc. (NASDAQ:DOCU), Synopsys, Inc. (NASDAQ:SNPS), Kinder Morgan Inc (NYSE:KMI), General Mills, Inc. (NYSE:GIS), Simon Property Group, Inc (NYSE:SPG), and Aptiv PLC (NYSE:APTV). All of these stocks’ market caps resemble CMI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $1316 million. That figure was $818 million in CMI’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand General Mills, Inc. (NYSE:GIS) is the least popular one with only 31 bullish hedge fund positions. Cummins Inc. (NYSE:CMI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CMI is 30. 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 negative signal and 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 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately CMI wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CMI investors were disappointed as the stock returned -6.6% since the end of March (through 6/25) 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 most of these stocks already outperformed the market in 2021.

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