Were Hedge Funds Right About Cinemark Holdings, Inc. (CNK)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Cinemark Holdings, Inc. (NYSE:CNK) and determine whether the smart money was really smart about this stock.

Is Cinemark Holdings, Inc. (NYSE:CNK) a buy right now? The smart money was betting on the stock. The number of bullish hedge fund positions advanced by 5 lately. Our calculations also showed that CNK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the fresh hedge fund action encompassing Cinemark Holdings, Inc. (NYSE:CNK).

What have hedge funds been doing with Cinemark Holdings, Inc. (NYSE:CNK)?

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CNK over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Cinemark Holdings, Inc. (NYSE:CNK) was held by Renaissance Technologies, which reported holding $51.1 million worth of stock at the end of September. It was followed by Rivulet Capital with a $50.9 million position. Other investors bullish on the company included SCGE Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Rivulet Capital allocated the biggest weight to Cinemark Holdings, Inc. (NYSE:CNK), around 3.26% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 1.19 percent of its 13F equity portfolio to CNK.

As one would reasonably expect, key hedge funds have jumped into Cinemark Holdings, Inc. (NYSE:CNK) headfirst. Rivulet Capital, managed by Barry Lebovits and Joshua Kuntz, created the biggest position in Cinemark Holdings, Inc. (NYSE:CNK). Rivulet Capital had $50.9 million invested in the company at the end of the quarter. Christopher Lyle’s SCGE Management also made a $22.4 million investment in the stock during the quarter. The other funds with brand new CNK positions are Guy Shahar’s DSAM Partners, Jeffrey Bronchick’s Cove Street Capital, and Michael Rockefeller and KarláKroeker’s Woodline Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cinemark Holdings, Inc. (NYSE:CNK) but similarly valued. These stocks are BMC Stock Holdings, Inc. (NASDAQ:BMCH), Magellan Health Inc (NASDAQ:MGLN), Ligand Pharmaceuticals Inc. (NASDAQ:LGND), and MicroStrategy Incorporated (NASDAQ:MSTR). All of these stocks’ market caps resemble CNK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMCH 23 210249 -6
MGLN 15 234535 -4
LGND 27 242071 4
MSTR 18 63901 -7
Average 20.75 187689 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $191 million in CNK’s case. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is the most popular stock in this table. On the other hand Magellan Health Inc (NASDAQ:MGLN) is the least popular one with only 15 bullish hedge fund positions. Cinemark Holdings, Inc. (NYSE:CNK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately CNK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CNK were disappointed as the stock returned 13.3% 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 many of these stocks already outperformed the market so far this year.

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