Were Hedge Funds Right About Souring On Caterpillar Inc. (CAT)?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 28, so let’s proceed with the discussion of the hedge fund sentiment on Caterpillar Inc. (NYSE:CAT).

Is Caterpillar Inc. (NYSE:CAT) undervalued? The smart money is in a bearish mood. The number of bullish hedge fund bets dropped by 8 recently. Our calculations also showed that CAT isn’t among the 30 most popular stocks among hedge funds. CAT was in 45 hedge funds’ portfolios at the end of the second quarter of 2019. There were 53 hedge funds in our database with CAT positions at the end of the previous quarter.

To most market participants, hedge funds are seen as unimportant, outdated financial vehicles of years past. While there are greater than 8000 funds with their doors open today, Our researchers look at the moguls of this club, about 750 funds. It is estimated that this group of investors watch over the majority of the hedge fund industry’s total capital, and by watching their inimitable equity investments, Insider Monkey has deciphered numerous investment strategies that have historically outstripped the market. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .


Cliff Asness of AQR Capital Management

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We’re going to view the fresh hedge fund action encompassing Caterpillar Inc. (NYSE:CAT).

Hedge fund activity in Caterpillar Inc. (NYSE:CAT)

At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 52 hedge funds with a bullish position in CAT a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CAT Positions

Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Caterpillar Inc. (NYSE:CAT), which was worth $1534.7 million at the end of the second quarter. On the second spot was D E Shaw which amassed $387.5 million worth of shares. Moreover, Citadel Investment Group, Renaissance Technologies, and AQR Capital Management were also bullish on Caterpillar Inc. (NYSE:CAT), allocating a large percentage of their portfolios to this stock.

Since Caterpillar Inc. (NYSE:CAT) has faced bearish sentiment from the smart money, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their positions entirely in the second quarter. It’s worth mentioning that Gregg Moskowitz’s Interval Partners dumped the largest position of the 750 funds tracked by Insider Monkey, worth close to $74.3 million in stock, and Rob Citrone’s Discovery Capital Management was right behind this move, as the fund cut about $57.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 8 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Caterpillar Inc. (NYSE:CAT) but similarly valued. We will take a look at Stryker Corporation (NYSE:SYK), Bristol-Myers Squibb Company (NYSE:BMY), The Goldman Sachs Group, Inc. (NYSE:GS), and Uber Technologies, Inc. (NYSE:UBER). This group of stocks’ market caps are closest to CAT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SYK 30 489887 -4
BMY 65 3885775 -6
GS 61 8200703 -15
UBER 56 5766639 56
Average 53 4585751 7.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 53 hedge funds with bullish positions and the average amount invested in these stocks was $4586 million. That figure was $3001 million in CAT’s case. Bristol-Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Stryker Corporation (NYSE:SYK) is the least popular one with only 30 bullish hedge fund positions. Caterpillar Inc. (NYSE:CAT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 CAT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CAT investors were disappointed as the stock returned -6.6% 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 in 2019.
5 Most Popular Stocks Among Hedge Funds
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.