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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of CMC Materials, Inc. (NASDAQ:CCMP).
Is CCMP a good stock to buy now? The best stock pickers were in a pessimistic mood. The number of bullish hedge fund positions dropped by 8 in recent months. CMC Materials, Inc. (NASDAQ:CCMP) was in 15 hedge funds' portfolios at the end of September. The all time high for this statistic is 24. Our calculations also showed that CCMP isn't among the 30 most popular stocks among hedge funds (click for Q3 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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Steven Cohen of Point72 Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now we're going to take a glance at the latest hedge fund action surrounding CMC Materials, Inc. (NASDAQ:CCMP).
Do Hedge Funds Think CCMP Is A Good Stock To Buy Now?
At the end of September, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in CCMP a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in CMC Materials, Inc. (NASDAQ:CCMP) was held by Royce & Associates, which reported holding $75.3 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $22.1 million position. Other investors bullish on the company included Running Oak Capital, Citadel Investment Group, and AQR Capital Management. In terms of the portfolio weights assigned to each position Running Oak Capital allocated the biggest weight to CMC Materials, Inc. (NASDAQ:CCMP), around 1.71% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.81 percent of its 13F equity portfolio to CCMP.
Due to the fact that CMC Materials, Inc. (NASDAQ:CCMP) has witnessed a decline in interest from the smart money, we can see that there is a sect of hedge funds who sold off their full holdings in the third quarter. It's worth mentioning that Clint Carlson's Carlson Capital said goodbye to the largest position of all the hedgies tracked by Insider Monkey, valued at about $45.7 million in stock. Renaissance Technologies, also sold off its stock, about $12.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 8 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as CMC Materials, Inc. (NASDAQ:CCMP) but similarly valued. We will take a look at Envestnet Inc (NYSE:ENV), Futu Holdings Limited (NASDAQ:FUTU), Noble Energy, Inc. (NYSE:NBL), Pure Storage, Inc. (NYSE:PSTG), Kinsale Capital Group, Inc. (NASDAQ:KNSL), Houlihan Lokey Inc (NYSE:HLI), and TFS Financial Corporation (NASDAQ:TFSL). This group of stocks' market valuations resemble CCMP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENV,25,165485,6 FUTU,15,102562,7 NBL,45,753639,7 PSTG,22,223929,-7 KNSL,16,47309,2 HLI,14,116876,-10 TFSL,9,119038,-2 Average,20.9,218405,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $120 million in CCMP's case. Noble Energy, Inc. (NYSE:NBL) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. CMC Materials, Inc. (NASDAQ:CCMP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CCMP is 24.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately CCMP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CCMP investors were disappointed as the stock returned 2.4% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.