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Were Hedge Funds Right About Canon Inc. (CAJ)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Canon Inc. (NYSE:CAJ).

Canon Inc. (NYSE:CAJ) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare CAJ to other stocks including WEC Energy Group, Inc. (NYSE:WEC), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), and State Street Corporation (NYSE:STT) to get a better sense of its popularity.

To most market participants, hedge funds are viewed as underperforming, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open at present, Our researchers choose to focus on the leaders of this club, approximately 850 funds. These hedge fund managers preside over bulk of the hedge fund industry’s total asset base, and by monitoring their best picks, Insider Monkey has identified various investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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. With all of this in mind we’re going to analyze the latest hedge fund action regarding Canon Inc. (NYSE:CAJ).

How are hedge funds trading Canon Inc. (NYSE:CAJ)?

Heading into the first quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in CAJ a year ago. 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, Renaissance Technologies held the most valuable stake in Canon Inc. (NYSE:CAJ), which was worth $49.3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $9.4 million worth of shares. Arrowstreet Capital, LMR Partners, and Two Sigma Advisors 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 LMR Partners allocated the biggest weight to Canon Inc. (NYSE:CAJ), around 0.12% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to CAJ.

Seeing as Canon Inc. (NYSE:CAJ) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers who were dropping their full holdings by the end of the third quarter. Intriguingly, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital cut the biggest position of the “upper crust” of funds followed by Insider Monkey, worth about $0.6 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund cut about $0.3 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Canon Inc. (NYSE:CAJ). We will take a look at WEC Energy Group, Inc. (NYSE:WEC), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), State Street Corporation (NYSE:STT), and The Williams Companies, Inc. (NYSE:WMB). This group of stocks’ market values are similar to CAJ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WEC 15 211776 -7
ERIC 18 367933 -2
STT 45 1286711 8
WMB 40 958886 0
Average 29.5 706327 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $706 million. That figure was $70 million in CAJ’s case. State Street Corporation (NYSE:STT) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Canon Inc. (NYSE:CAJ) is even less popular than WEC. Hedge funds dodged a bullet by taking a bearish stance towards CAJ. Our calculations showed that the top 10 most popular hedge fund stocks 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 managed to beat the market by 12.9 percentage points. Unfortunately CAJ wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CAJ investors were disappointed as the stock returned -26.4% 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 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.

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