We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether Crown Castle International Corp. (NYSE:CCI) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Crown Castle International Corp. (NYSE:CCI) undervalued? The best stock pickers are becoming less hopeful. The number of long hedge fund bets shrunk by 3 in recent months. Our calculations also showed that CCI 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). CCI was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 41 hedge funds in our database with CCI positions at the end of the previous quarter.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 take a gander at the fresh hedge fund action encompassing Crown Castle International Corp. (NYSE:CCI).
What have hedge funds been doing with Crown Castle International Corp. (NYSE:CCI)?
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in CCI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Crown Castle International Corp. (NYSE:CCI), which was worth $758.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $259.1 million worth of shares. Echo Street Capital Management, D E Shaw, and AQR 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 Skylands Capital allocated the biggest weight to Crown Castle International Corp. (NYSE:CCI), around 7.69% of its 13F portfolio. LDR Capital is also relatively very bullish on the stock, designating 4.84 percent of its 13F equity portfolio to CCI.
Seeing as Crown Castle International Corp. (NYSE:CCI) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of fund managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Joe DiMenna’s ZWEIG DIMENNA PARTNERS said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $10.1 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dropped its stock, about $6.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Crown Castle International Corp. (NYSE:CCI) but similarly valued. These stocks are Colgate-Palmolive Company (NYSE:CL), Northrop Grumman Corporation (NYSE:NOC), Lloyds Banking Group PLC (NYSE:LYG), and Illinois Tool Works Inc. (NYSE:ITW). This group of stocks’ market caps are closest to CCI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $986 million. That figure was $1724 million in CCI’s case. Colgate-Palmolive Company (NYSE:CL) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. Crown Castle International Corp. (NYSE:CCI) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 12.9 percentage points. Hedge funds were also right about betting on CCI as the stock returned 10.9% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.