Should I Buy Cubic Corporation (CUB)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Cubic Corporation (NYSE:CUB) based on those filings.

Should we buy Cubic Corporation (NYSE:CUB)? CUB was in 19 hedge funds’ portfolios at the end of September. The all time high for this statistic is 22. CUB shareholders have witnessed an increase in support from the world’s most elite money managers lately. There were 13 hedge funds in our database with CUB positions at the end of the second quarter. Our calculations also showed that CUB 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.

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 S&P 500 ETFs by 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.

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 we’re going to go over the latest hedge fund action encompassing Cubic Corporation (NYSE:CUB).

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

At third quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 46% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CUB over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Elliott Investment Management held the most valuable stake in Cubic Corporation (NYSE:CUB), which was worth $87.3 million at the end of the third quarter. On the second spot was TOMS Capital which amassed $29.1 million worth of shares. Value Holdings LP, Pentwater Capital Management, and D E Shaw 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 TOMS Capital allocated the biggest weight to Cubic Corporation (NYSE:CUB), around 4.35% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, setting aside 2.45 percent of its 13F equity portfolio to CUB.

As aggregate interest increased, specific money managers were breaking ground themselves. Elliott Investment Management, managed by Paul Singer, initiated the biggest position in Cubic Corporation (NYSE:CUB). Elliott Investment Management had $87.3 million invested in the company at the end of the quarter. Matthew Halbower’s Pentwater Capital Management also initiated a $7 million position during the quarter. The other funds with new positions in the stock are Chuck Royce’s Royce & Associates, Benjamin Pass’s TOMS Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cubic Corporation (NYSE:CUB) but similarly valued. We will take a look at PRA Group, Inc. (NASDAQ:PRAA), SPX FLOW, Inc. (NYSE:FLOW), Yext, Inc. (NYSE:YEXT), American National Group Inc. (NASDAQ:ANAT), IAMGOLD Corporation (NYSE:IAG), Investors Bancorp, Inc. (NASDAQ:ISBC), and Ambarella Inc (NASDAQ:AMBA). All of these stocks’ market caps are similar to CUB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $118 million in CUB’s case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand Yext, Inc. (NYSE:YEXT) is the least popular one with only 11 bullish hedge fund positions. Cubic Corporation (NYSE:CUB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CUB is 53.3. 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. 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 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 surpassed the market again by 15.8 percentage points. Unfortunately CUB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CUB investors were disappointed as the stock returned 7% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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