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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Cadence Design Systems Inc (NASDAQ:CDNS).
Is CDNS stock a buy? Money managers were becoming less hopeful. The number of bullish hedge fund positions were cut by 5 lately. Cadence Design Systems Inc (NASDAQ:CDNS) was in 32 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 42. Our calculations also showed that CDNS isn't among the 30 most popular stocks among hedge funds (click for Q4 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. 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 124 percentage points since March 2017 (see the details here).
Noam Gottesman of GLG Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. With all of this in mind we're going to take a glance at the new hedge fund action regarding Cadence Design Systems Inc (NASDAQ:CDNS).
Do Hedge Funds Think CDNS Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in CDNS a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in Cadence Design Systems Inc (NASDAQ:CDNS), which was worth $766.2 million at the end of the fourth quarter. On the second spot was Impax Asset Management which amassed $182.5 million worth of shares. AQR Capital Management, Polar Capital, and GLG Partners 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 Chiron Investment Management allocated the biggest weight to Cadence Design Systems Inc (NASDAQ:CDNS), around 1.96% of its 13F portfolio. Alkeon Capital Management is also relatively very bullish on the stock, dishing out 1.25 percent of its 13F equity portfolio to CDNS.
Since Cadence Design Systems Inc (NASDAQ:CDNS) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there were a few fund managers that decided to sell off their positions entirely by the end of the fourth quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management dumped the largest position of the "upper crust" of funds followed by Insider Monkey, worth an estimated $10.7 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also sold off its stock, about $7.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 5 funds by the end of the fourth quarter.
Let's also examine hedge fund activity in other stocks similar to Cadence Design Systems Inc (NASDAQ:CDNS). We will take a look at Liberty Broadband Corp (NASDAQ:LBRDK), IHS Markit Ltd. (NASDAQ:INFO), SYSCO Corporation (NYSE:SYY), Freeport-McMoRan Inc. (NYSE:FCX), Liberty Broadband Corp (NASDAQ:LBRDA), Biogen Inc. (NASDAQ:BIIB), and The Trade Desk, Inc. (NASDAQ:TTD). This group of stocks' market caps match CDNS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LBRDK,80,7270683,24 INFO,59,2489276,15 SYY,40,2513070,7 FCX,61,2664729,4 LBRDA,26,908617,1 BIIB,63,2752928,4 TTD,35,1195309,12 Average,52,2827802,9.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 52 hedge funds with bullish positions and the average amount invested in these stocks was $2828 million. That figure was $1405 million in CDNS's case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Liberty Broadband Corp (NASDAQ:LBRDA) is the least popular one with only 26 bullish hedge fund positions. Cadence Design Systems Inc (NASDAQ:CDNS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CDNS is 28.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately CDNS wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); CDNS investors were disappointed as the stock returned 6.1% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.