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Were Hedge Funds Right About Dumping Cooper Tire & Rubber Company (CTB)?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Cooper Tire & Rubber Company (NYSE:CTB).

Is Cooper Tire & Rubber Company (NYSE:CTB) a safe investment right now? The smart money is turning less bullish. The number of bullish hedge fund positions dropped by 2 lately. Our calculations also showed that CTB isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CTB_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the key hedge fund action encompassing Cooper Tire & Rubber Company (NYSE:CTB).

How are hedge funds trading Cooper Tire & Rubber Company (NYSE:CTB)?

At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CTB over the last 16 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Paul Marshall Marshall Wace

Among these funds, Royce & Associates held the most valuable stake in Cooper Tire & Rubber Company (NYSE:CTB), which was worth $38.2 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $37.9 million worth of shares. Moreover, Arrowstreet Capital, Millennium Management, and D E Shaw were also bullish on Cooper Tire & Rubber Company (NYSE:CTB), allocating a large percentage of their portfolios to this stock.

Seeing as Cooper Tire & Rubber Company (NYSE:CTB) has witnessed a decline in interest from the smart money, it’s easy to see that there were a few fund managers that decided to sell off their entire stakes last quarter. Intriguingly, David Costen Haley’s HBK Investments sold off the largest investment of the 750 funds watched by Insider Monkey, comprising about $0.3 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also dumped its stock, about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cooper Tire & Rubber Company (NYSE:CTB) but similarly valued. These stocks are Atrion Corporation (NASDAQ:ATRI), State Auto Financial Corporation (NASDAQ:STFC), The RMR Group Inc. (NASDAQ:RMR), and Universal Corp (NYSE:UVV). All of these stocks’ market caps are closest to CTB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATRI 11 95715 3
STFC 7 23214 2
RMR 22 206825 2
UVV 18 118445 1
Average 14.5 111050 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 $111 million. That figure was $165 million in CTB’s case. The RMR Group Inc. (NASDAQ:RMR) is the most popular stock in this table. On the other hand State Auto Financial Corporation (NASDAQ:STFC) is the least popular one with only 7 bullish hedge fund positions. Cooper Tire & Rubber Company (NYSE:CTB) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CTB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CTB were disappointed as the stock returned -16.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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