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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cango Inc. (NYSE:CANG).
Is CANG a good stock to buy? Cango Inc. (NYSE:CANG) shareholders have witnessed an increase in activity from the world's largest hedge funds lately. Cango Inc. (NYSE:CANG) was in 5 hedge funds' portfolios at the end of March. The all time high for this statistic was 2. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 2 hedge funds in our database with CANG holdings at the end of December. Our calculations also showed that CANG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Bart Baum of Ionic Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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 look at the fresh hedge fund action encompassing Cango Inc. (NYSE:CANG).
Do Hedge Funds Think CANG Is A Good Stock To Buy Now?
At the end of March, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 150% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CANG over the last 23 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Cango Inc. (NYSE:CANG), with a stake worth $6 million reported as of the end of March. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $1.4 million. Ionic Capital Management, Paloma Partners, and Schonfeld Strategic Advisors 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 Ionic Capital Management allocated the biggest weight to Cango Inc. (NYSE:CANG), around 0.09% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to CANG.
As industrywide interest jumped, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the most valuable position in Cango Inc. (NYSE:CANG). Citadel Investment Group had $6 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $1.4 million position during the quarter. The following funds were also among the new CANG investors: Donald Sussman's Paloma Partners and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's also examine hedge fund activity in other stocks similar to Cango Inc. (NYSE:CANG). These stocks are Columbus McKinnon Corporation (NASDAQ:CMCO), Montrose Environmental Group, Inc. (NYSE:MEG), Southside Bancshares, Inc. (NASDAQ:SBSI), Praxis Precision Medicines, Inc. (NASDAQ:PRAX), Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA), Vocera Communications Inc (NYSE:VCRA), and Simulations Plus, Inc. (NASDAQ:SLP). This group of stocks' market valuations resemble CANG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMCO,13,32337,0 MEG,9,54885,-3 SBSI,7,43300,-3 PRAX,12,237226,-7 KNSA,16,181048,-3 VCRA,20,119950,0 SLP,11,55563,-3 Average,12.6,103473,-2.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.6 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $9 million in CANG's case. Vocera Communications Inc (NYSE:VCRA) is the most popular stock in this table. On the other hand Southside Bancshares, Inc. (NASDAQ:SBSI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Cango Inc. (NYSE:CANG) is even less popular than SBSI. Our overall hedge fund sentiment score for CANG is 38. 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. Hedge funds dodged a bullet by taking a bearish stance towards CANG. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th but managed to beat the market again by 6.1 percentage points. Unfortunately CANG wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); CANG investors were disappointed as the stock returned -38.3% since the end of the first quarter (through 6/18) 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 since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.