Should You Avoid Cronos Group Inc. (CRON)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Cronos Group Inc. (NASDAQ:CRON).

Cronos Group Inc. (NASDAQ:CRON) has experienced a decrease in hedge fund sentiment lately. CRON was in 10 hedge funds’ portfolios at the end of December. There were 12 hedge funds in our database with CRON holdings at the end of the previous quarter. Our calculations also showed that CRON isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the latest hedge fund action regarding Cronos Group Inc. (NASDAQ:CRON).

How are hedge funds trading Cronos Group Inc. (NASDAQ:CRON)?

At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CRON over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Cronos Group Inc. (NASDAQ:CRON) was held by Chescapmanager LLC, which reported holding $68.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $7 million position. Other investors bullish on the company included OZ Management, Berylson Capital Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Chescapmanager LLC allocated the biggest weight to Cronos Group Inc. (NASDAQ:CRON), around 10.01% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, setting aside 3.54 percent of its 13F equity portfolio to CRON.

Since Cronos Group Inc. (NASDAQ:CRON) has faced bearish sentiment from the smart money, logic holds that there exists a select few hedge funds that elected to cut their full holdings in the third quarter. Interestingly, Noam Gottesman’s GLG Partners cut the largest stake of the 750 funds tracked by Insider Monkey, comprising close to $1 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Cronos Group Inc. (NASDAQ:CRON). We will take a look at Atlantica Yield plc (NASDAQ:AY), Fox Factory Holding Corp (NASDAQ:FOXF), PennyMac Financial Services Inc (NYSE:PFSI), and WD-40 Company (NASDAQ:WDFC). This group of stocks’ market caps match CRON’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AY 16 122712 -3
FOXF 13 15755 -1
PFSI 16 135422 1
WDFC 17 221684 -2
Average 15.5 123893 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $90 million in CRON’s case. WD-40 Company (NASDAQ:WDFC) is the most popular stock in this table. On the other hand Fox Factory Holding Corp (NASDAQ:FOXF) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Cronos Group Inc. (NASDAQ:CRON) is even less popular than FOXF. Hedge funds dodged a bullet by taking a bearish stance towards CRON. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately CRON wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CRON investors were disappointed as the stock returned -24.8% during the same time period 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 so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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