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

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtCisco Systems, Inc. (NASDAQ:CSCO) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Cisco Systems, Inc. (NASDAQ:CSCO) a cheap stock to buy now? Prominent investors were reducing their bets on the stock. The number of bullish hedge fund positions retreated by 10 in recent months. Our calculations also showed that CSCO 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).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments

John Rogers of Ariel Investments

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. With all of this in mind let’s take a look at the recent hedge fund action regarding Cisco Systems, Inc. (NASDAQ:CSCO).

Hedge fund activity in Cisco Systems, Inc. (NASDAQ:CSCO)

Heading into the second quarter of 2020, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CSCO over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Cisco Systems, Inc. (NASDAQ:CSCO), which was worth $824.3 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $318.4 million worth of shares. Adage Capital Management, Yacktman Asset Management, and Citadel Investment Group 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 6.82% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, designating 3.64 percent of its 13F equity portfolio to CSCO.

Due to the fact that Cisco Systems, Inc. (NASDAQ:CSCO) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers that slashed their entire stakes in the first quarter. It’s worth mentioning that Renaissance Technologies dropped the biggest stake of the 750 funds followed by Insider Monkey, totaling about $81.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $32.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 10 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cisco Systems, Inc. (NASDAQ:CSCO) but similarly valued. These stocks are Netflix, Inc. (NASDAQ:NFLX), NVIDIA Corporation (NASDAQ:NVDA), Exxon Mobil Corporation (NYSE:XOM), and Comcast Corporation (NASDAQ:CMCSA). This group of stocks’ market valuations match CSCO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NFLX 109 13648064 -5
NVDA 95 4127764 16
XOM 65 1295305 2
CMCSA 83 5538665 -4
Average 88 6152450 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 88 hedge funds with bullish positions and the average amount invested in these stocks was $6152 million. That figure was $2532 million in CSCO’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 65 bullish hedge fund positions. Compared to these stocks Cisco Systems, Inc. (NASDAQ:CSCO) is even less popular than XOM. Hedge funds dodged a bullet by taking a bearish stance towards CSCO. Our calculations showed that the top 10 most popular hedge fund stocks 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 managed to beat the market by 15.5 percentage points. Unfortunately CSCO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CSCO investors were disappointed as the stock returned 19.8% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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