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Was The Smart Money Right About Celestica Inc. (CLS)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Celestica Inc. (NYSE:CLS) in this article.

Hedge fund interest in Celestica Inc. (NYSE:CLS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Tenneco Inc (NYSE:TEN), National Western Life Group, Inc. (NASDAQ:NWLI), and Nova Measuring Instruments Ltd. (NASDAQ:NVMI) to gather more data points. Our calculations also showed that CLS 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).

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. 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. Now we’re going to review the new hedge fund action encompassing Celestica Inc. (NYSE:CLS).

What does smart money think about Celestica Inc. (NYSE:CLS)?

At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CLS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pzena Investment Management held the most valuable stake in Celestica Inc. (NYSE:CLS), which was worth $43.9 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $14.7 million worth of shares. Hawk Ridge Management, D E Shaw, and Invenomic Capital Management 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 Hawk Ridge Management allocated the biggest weight to Celestica Inc. (NYSE:CLS), around 2.22% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, setting aside 1.63 percent of its 13F equity portfolio to CLS.

Judging by the fact that Celestica Inc. (NYSE:CLS) has experienced a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes in the third quarter. At the top of the heap, Michael M. Rothenberg’s Moab Capital Partners dumped the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $2.8 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund dropped about $0.8 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Celestica Inc. (NYSE:CLS) but similarly valued. We will take a look at Tenneco Inc (NYSE:TEN), National Western Life Group, Inc. (NASDAQ:NWLI), Nova Measuring Instruments Ltd. (NASDAQ:NVMI), and Photronics, Inc. (NASDAQ:PLAB). This group of stocks’ market valuations resemble CLS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEN 21 143149 8
NWLI 6 15097 -3
NVMI 10 203261 0
PLAB 21 113599 3
Average 14.5 118777 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $97 million in CLS’s case. Tenneco Inc (NYSE:TEN) is the most popular stock in this table. On the other hand National Western Life Group, Inc. (NASDAQ:NWLI) is the least popular one with only 6 bullish hedge fund positions. Celestica Inc. (NYSE:CLS) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately CLS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CLS investors were disappointed as the stock returned -27% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market 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.

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