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Were Hedge Funds Right About Piling Into CSX Corporation (CSX)?

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 CSX Corporation (NASDAQ:CSX) and determine whether the smart money was really smart about this stock.

Is CSX Corporation (NASDAQ:CSX) an attractive investment today? Investors who are in the know were becoming more confident. The number of long hedge fund bets increased by 11 lately. Our calculations also showed that CSX 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). CSX was in 57 hedge funds’ portfolios at the end of March. There were 46 hedge funds in our database with CSX holdings at the end of the previous quarter.

Video: 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’ 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 58 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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. Keeping this in mind we’re going to take a peek at the latest hedge fund action regarding CSX Corporation (NASDAQ:CSX).

How have hedgies been trading CSX Corporation (NASDAQ:CSX)?

At Q1’s end, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CSX over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Soroban Capital Partners was the largest shareholder of CSX Corporation (NASDAQ:CSX), with a stake worth $840.6 million reported as of the end of September. Trailing Soroban Capital Partners was Citadel Investment Group, which amassed a stake valued at $290 million. Steadfast Capital Management, Fisher Asset Management, and Renaissance Technologies 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 Soroban Capital Partners allocated the biggest weight to CSX Corporation (NASDAQ:CSX), around 15.41% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, dishing out 6.42 percent of its 13F equity portfolio to CSX.

As industrywide interest jumped, some big names were breaking ground themselves. Palestra Capital Management, managed by Andrew Immerman and Jeremy Schiffman, established the most valuable position in CSX Corporation (NASDAQ:CSX). Palestra Capital Management had $177.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $82.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Andreas Halvorsen’s Viking Global, Robert Bishop’s Impala Asset Management, and Alexander Mitchell’s Scopus Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CSX Corporation (NASDAQ:CSX) but similarly valued. We will take a look at Air Products & Chemicals, Inc. (NYSE:APD), Shopify Inc (NYSE:SHOP), Kimberly Clark Corporation (NYSE:KMB), and Marsh & McLennan Companies, Inc. (NYSE:MMC). This group of stocks’ market caps resemble CSX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APD 41 352215 -13
SHOP 43 2892013 13
KMB 46 1173309 9
MMC 37 668435 6
Average 41.75 1271493 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.75 hedge funds with bullish positions and the average amount invested in these stocks was $1271 million. That figure was $2811 million in CSX’s case. Kimberly Clark Corporation (NYSE:KMB) is the most popular stock in this table. On the other hand Marsh & McLennan Companies, Inc. (NYSE:MMC) is the least popular one with only 37 bullish hedge fund positions. Compared to these stocks CSX Corporation (NASDAQ:CSX) is more popular among hedge funds. 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 still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CSX, though not to the same extent, as the stock returned 22.1% in Q2 and outperformed the market as well.

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