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In this article we are going to use hedge fund sentiment as a tool and determine whether CAE, Inc. (NYSE:CAE) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is CAE a good stock to buy? CAE, Inc. (NYSE:CAE) has experienced an increase in hedge fund sentiment of late. CAE, Inc. (NYSE:CAE) was in 17 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 20. Our calculations also showed that CAE 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 let's take a glance at the fresh hedge fund action regarding CAE, Inc. (NYSE:CAE).
Do Hedge Funds Think CAE Is A Good Stock To Buy Now?
At the end of March, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 70% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in CAE a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Edward Goodnow's Goodnow Investment Group has the biggest position in CAE, Inc. (NYSE:CAE), worth close to $52.8 million, corresponding to 4.8% of its total 13F portfolio. The second largest stake is held by Sandler Capital Management, managed by Andrew Sandler, which holds a $12.6 million position; 1.1% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish contain Renaissance Technologies, Frank Fu's CaaS Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Goodnow Investment Group allocated the biggest weight to CAE, Inc. (NYSE:CAE), around 4.82% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, setting aside 1.52 percent of its 13F equity portfolio to CAE.
Now, key hedge funds have been driving this bullishness. Sandler Capital Management, managed by Andrew Sandler, created the biggest position in CAE, Inc. (NYSE:CAE). Sandler Capital Management had $12.6 million invested in the company at the end of the quarter. Renaissance Technologies also made a $10.6 million investment in the stock during the quarter. The other funds with brand new CAE positions are Frank Fu's CaaS Capital, Matthew L Pinz's Pinz Capital, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as CAE, Inc. (NYSE:CAE) but similarly valued. These stocks are Pearson PLC (NYSE:PSO), Genpact Limited (NYSE:G), Casey's General Stores, Inc. (NASDAQ:CASY), RenaissanceRe Holdings Ltd. (NYSE:RNR), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), DXC Technology Company (NYSE:DXC), and Syneos Health, Inc. (NASDAQ:SYNH). This group of stocks' market valuations are similar to CAE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PSO,6,19900,1 G,23,271528,-8 CASY,11,96510,-12 RNR,30,470953,-9 KNX,25,341454,-9 DXC,28,1057642,-11 SYNH,28,460253,-1 Average,21.6,388320,-7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $388 million. That figure was $113 million in CAE's case. RenaissanceRe Holdings Ltd. (NYSE:RNR) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 6 bullish hedge fund positions. CAE, Inc. (NYSE:CAE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CAE is 58.4. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately CAE wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CAE investors were disappointed as the stock returned 8.8% since the end of March (through 7/23) 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.