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Should You Buy Carnival Corporation (CCL)?

“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Carnival Corporation (NYSE:CCL) has experienced an increase in hedge fund sentiment of late. CCL was in 36 hedge funds’ portfolios at the end of September. There were 29 hedge funds in our database with CCL positions at the end of the previous quarter. Our calculations also showed that CCL isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to the beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Let’s view the fresh hedge fund action surrounding Carnival Corporation (NYSE:CCL).

What have hedge funds been doing with Carnival Corporation (NYSE:CCL)?

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the second quarter of 2018. On the other hand, there were a total of 38 hedge funds with a bullish position in CCL 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.

CCL_dec2018

Among these funds, Two Sigma Advisors held the most valuable stake in Carnival Corporation (NYSE:CCL), which was worth $193.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $193.1 million worth of shares. Moreover, GLG Partners, Millennium Management, and Capital Growth Management were also bullish on Carnival Corporation (NYSE:CCL), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, key money managers have jumped into Carnival Corporation (NYSE:CCL) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the most outsized position in Carnival Corporation (NYSE:CCL). Point72 Asset Management had $39.5 million invested in the company at the end of the quarter. Zach Schreiber’s Point State Capital also initiated a $29.3 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Carnival Corporation (NYSE:CCL) but similarly valued. We will take a look at Las Vegas Sands Corp. (NYSE:LVS), Humana Inc (NYSE:HUM), Metlife Inc (NYSE:MET), and Target Corporation (NYSE:TGT). All of these stocks’ market caps resemble CCL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LVS 38 1350452 10
HUM 44 3204559 3
MET 24 1157827 -2
TGT 42 1971217 8

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1.92 billion. That figure was $981 million in CCL’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Metlife Inc (NYSE:MET) is the least popular one with only 24 bullish hedge fund positions. Carnival Corporation (NYSE:CCL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HUM might be a better candidate to consider a long position.

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

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