Were Hedge Funds Right About Cisco Systems, Inc. (CSCO)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Cisco Systems, Inc. (NASDAQ:CSCO).

Is Cisco Systems, Inc. (NASDAQ:CSCO) an attractive investment now? The smart money was in a bullish mood. The number of long hedge fund positions advanced by 1 lately. Cisco Systems, Inc. (NASDAQ:CSCO) was in 59 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 68. Our calculations also showed that CSCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

At the moment there are tons of metrics stock traders can use to grade publicly traded companies. Two of the best metrics are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top investment managers can outclass the broader indices by a healthy amount (see the details here).

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a glance at the recent hedge fund action regarding Cisco Systems, Inc. (NASDAQ:CSCO).

How are hedge funds trading Cisco Systems, Inc. (NASDAQ:CSCO)?

At the end of June, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CSCO over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Cisco Systems, Inc. (NASDAQ:CSCO), which was worth $953.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $357.7 million worth of shares. AQR Capital Management, Adage Capital Management, 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 Heathbridge Capital Management allocated the biggest weight to Cisco Systems, Inc. (NASDAQ:CSCO), around 8.9% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, designating 3.02 percent of its 13F equity portfolio to CSCO.

With a general bullishness amongst the heavyweights, some big names have jumped into Cisco Systems, Inc. (NASDAQ:CSCO) headfirst. Renaissance Technologies, founded by Jim Simons, assembled the most valuable position in Cisco Systems, Inc. (NASDAQ:CSCO). Renaissance Technologies had $52.7 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also initiated a $30.2 million position during the quarter. The other funds with new positions in the stock are Andrew Sandler’s Sandler Capital Management, Schonfeld Strategic Advisors, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cisco Systems, Inc. (NASDAQ:CSCO) but similarly valued. We will take a look at Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), PepsiCo, Inc. (NASDAQ:PEP), Pfizer Inc. (NYSE:PFE), Comcast Corporation (NASDAQ:CMCSA), and Toyota Motor Corporation (NYSE:TM). All of these stocks’ market caps match CSCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MRK 76 4854278 -2
KO 59 20093024 4
XOM 53 1114752 -12
PEP 53 3156792 -4
PFE 66 2139163 -1
CMCSA 80 7207135 -3
TM 13 719379 2
Average 57.1 5612075 -2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.1 hedge funds with bullish positions and the average amount invested in these stocks was $5612 million. That figure was $2905 million in CSCO’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSCO is 66.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately CSCO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CSCO were disappointed as the stock returned -12.4% since the end of June (through 10/16) 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.