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Is Carnival Corporation (CCL) Going to Burn These Hedge Funds?

Abigail Fisher

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves.

Is Carnival Corporation & Plc (NYSE:CCL) an attractive investment today? The best stock pickers are buying. The number of bullish hedge fund bets moved up by 8 recently. Our calculations also showed that CCL isn't among the 30 most popular stocks among hedge funds (see the video below). CCL was in 36 hedge funds' portfolios at the end of the second quarter of 2019. There were 28 hedge funds in our database with CCL holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CCL_oct2019

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. Let's take a gander at the recent hedge fund action encompassing Carnival Corporation & Plc (NYSE:CCL).

How have hedgies been trading Carnival Corporation & Plc (NYSE:CCL)?

Heading into the third quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in CCL a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

OMEGA ADVISORS

More specifically, Arrowstreet Capital was the largest shareholder of Carnival Corporation & Plc (NYSE:CCL), with a stake worth $110 million reported as of the end of March. Trailing Arrowstreet Capital was Two Sigma Advisors, which amassed a stake valued at $105.3 million. Citadel Investment Group, Millennium Management, and HG Vora Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers have jumped into Carnival Corporation & Plc (NYSE:CCL) headfirst. Millennium Management, managed by Israel Englander, assembled the most outsized position in Carnival Corporation & Plc (NYSE:CCL). Millennium Management had $59 million invested in the company at the end of the quarter. Parag Vora's HG Vora Capital Management also made a $58.2 million investment in the stock during the quarter. The other funds with new positions in the stock are John Khoury's Long Pond Capital, Leon Cooperman's Omega Advisors, and Dmitry Balyasny's Balyasny Asset Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Carnival Corporation & Plc (NYSE:CCL) but similarly valued. These stocks are Barclays PLC (NYSE:BCS), Canadian Pacific Railway Limited (NYSE:CP), Thomson Reuters Corporation (NYSE:TRI), and TE Connectivity Ltd. (NYSE:TEL). This group of stocks' market caps resemble CCL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCS,12,130909,2 CP,30,2313888,0 TRI,17,316318,0 TEL,27,1350859,1 Average,21.5,1027994,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $1028 million. That figure was $671 million in CCL's case. Canadian Pacific Railway Limited (NYSE:CP) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Carnival Corporation & Plc (NYSE:CCL) is more popular among hedge funds. 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 CCL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CCL were disappointed as the stock returned -5.1% 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 in Q3.

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

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