Should You Avoid Cognex Corporation (CGNX)?

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during October and average hedge fund losing about 3%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 4 percentage points during the first half of Q4, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Cognex Corporation (NASDAQ:CGNX) during the quarter below.

Cognex Corporation (NASDAQ:CGNX) was in 13 hedge funds’ portfolios at the end of September. CGNX has seen a decrease in hedge fund sentiment of late. There were 16 hedge funds in our database with CGNX holdings at the end of the previous quarter. Our calculations also showed that CGNX isn’t among the 30 most popular stocks among hedge funds.

If you’d ask most investors, hedge funds are perceived as worthless, old financial tools of yesteryear. While there are greater than 8,000 funds with their doors open at the moment, Our researchers look at the crème de la crème of this club, around 700 funds. Most estimates calculate that this group of people manage the majority of all hedge funds’ total asset base, and by observing their highest performing investments, Insider Monkey has deciphered several investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by 6 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.

Chuck Royce

Let’s check out the fresh hedge fund action surrounding Cognex Corporation (NASDAQ:CGNX).

What does the smart money think about Cognex Corporation (NASDAQ:CGNX)?

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the second quarter of 2018. On the other hand, there were a total of 28 hedge funds with a bullish position in CGNX at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds CGNX Positions

Among these funds, Joho Capital held the most valuable stake in Cognex Corporation (NASDAQ:CGNX), which was worth $126.5 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $64.7 million worth of shares. Moreover, Polar Capital, Renaissance Technologies, and PDT Partners were also bullish on Cognex Corporation (NASDAQ:CGNX), allocating a large percentage of their portfolios to this stock.

Because Cognex Corporation (NASDAQ:CGNX) has experienced falling interest from hedge fund managers, it’s safe to say that there was a specific group of fund managers that slashed their positions entirely in the third quarter. It’s worth mentioning that Daniel S. Och’s OZ Management dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $5.6 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $1.2 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 3 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cognex Corporation (NASDAQ:CGNX) but similarly valued. These stocks are Newell Brands Inc. (NYSE:NWL), SEI Investments Company (NASDAQ:SEIC), Lear Corporation (NYSE:LEA), and Zebra Technologies Corporation (NASDAQ:ZBRA). This group of stocks’ market valuations resemble CGNX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWL 36 1698839 3
SEIC 24 360985 2
LEA 34 845180 2
ZBRA 27 893057 -5
Average 30.25 949515 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $950 million. That figure was $272 million in CGNX’s case. Newell Brands Inc. (NYSE:NWL) is the most popular stock in this table. On the other hand SEI Investments Company (NASDAQ:SEIC) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Cognex Corporation (NASDAQ:CGNX) is even less popular than SEIC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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