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Should I Avoid Cognizant Technology Solutions Corp (CTSH)?

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  • CTSH

The Insider Monkey team has completed processing the quarterly 13F filings for the March quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Cognizant Technology Solutions Corp (NASDAQ:CTSH).

Cognizant Technology Solutions Corp (NASDAQ:CTSH) investors should be aware of a decrease in enthusiasm from smart money in recent months. Cognizant Technology Solutions Corp (NASDAQ:CTSH) was in 33 hedge funds' portfolios at the end of March. The all time high for this statistic is 55. There were 46 hedge funds in our database with CTSH positions at the end of the fourth quarter. Our calculations also showed that CTSH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Kingdon - Kingdon Capital
Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to take a peek at the new hedge fund action surrounding Cognizant Technology Solutions Corp (NASDAQ:CTSH).

Do Hedge Funds Think CTSH Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CTSH over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Generation Investment Management held the most valuable stake in Cognizant Technology Solutions Corp (NASDAQ:CTSH), which was worth $995.1 million at the end of the fourth quarter. On the second spot was Pzena Investment Management which amassed $796.3 million worth of shares. Diamond Hill Capital, 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 Broad Peak Investment Holdings allocated the biggest weight to Cognizant Technology Solutions Corp (NASDAQ:CTSH), around 6.58% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, dishing out 4.17 percent of its 13F equity portfolio to CTSH.

Due to the fact that Cognizant Technology Solutions Corp (NASDAQ:CTSH) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers who sold off their full holdings by the end of the first quarter. At the top of the heap, James Parsons's Junto Capital Management dumped the largest position of the 750 funds monitored by Insider Monkey, comprising close to $110.2 million in stock. Steve Cohen's fund, Point72 Asset Management, also cut its stock, about $16.7 million worth. These transactions are interesting, as total hedge fund interest was cut by 13 funds by the end of the first quarter.

Let's check out hedge fund activity in other stocks similar to Cognizant Technology Solutions Corp (NASDAQ:CTSH). These stocks are DuPont de Nemours Inc (NYSE:DD), Lloyds Banking Group PLC (NYSE:LYG), IHS Markit Ltd. (NYSE:INFO), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), BCE Inc. (NYSE:BCE), Parker-Hannifin Corporation (NYSE:PH), and Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC). This group of stocks' market caps are similar to CTSH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DD,49,1720375,-11 LYG,5,14096,0 INFO,54,4093725,-5 CRWD,77,5257998,-15 BCE,10,121896,-3 PH,43,1259967,-13 ERIC,19,317626,-1 Average,36.7,1826526,-6.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.7 hedge funds with bullish positions and the average amount invested in these stocks was $1827 million. That figure was $3339 million in CTSH's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) 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. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CTSH is 29.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately CTSH wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CTSH investors were disappointed as the stock returned -10.6% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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