Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to CF Industries Holdings, Inc. (NYSE:CF) changed recently.
CF Industries Holdings, Inc. (NYSE:CF) investors should pay attention to an increase in hedge fund interest lately. Our calculations also showed that CF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_339739" align="aligncenter" width="600"] Ricky Sandler of Eminence Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the latest hedge fund action regarding CF Industries Holdings, Inc. (NYSE:CF).
How have hedgies been trading CF Industries Holdings, Inc. (NYSE:CF)?
Heading into the fourth quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CF over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Eminence Capital was the largest shareholder of CF Industries Holdings, Inc. (NYSE:CF), with a stake worth $191.8 million reported as of the end of September. Trailing Eminence Capital was Glendon Capital Management, which amassed a stake valued at $144.2 million. Platinum Asset Management, Two Sigma Advisors, and Thunderbird 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 Glendon Capital Management allocated the biggest weight to CF Industries Holdings, Inc. (NYSE:CF), around 33.27% of its portfolio. Horseman Capital Management is also relatively very bullish on the stock, setting aside 8.02 percent of its 13F equity portfolio to CF.
Consequently, key hedge funds were leading the bulls' herd. Renaissance Technologies established the largest position in CF Industries Holdings, Inc. (NYSE:CF). Renaissance Technologies had $28.8 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $20.1 million investment in the stock during the quarter. The following funds were also among the new CF investors: Ray Dalio's Bridgewater Associates, Javier Velazquez's Albar Capital, and Matthew Tewksbury's Stevens Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as CF Industries Holdings, Inc. (NYSE:CF) but similarly valued. We will take a look at Sasol Limited (NYSE:SSL), Lamb Weston Holdings, Inc. (NYSE:LW), UGI Corp (NYSE:UGI), and E*TRADE Financial Corporation (NASDAQ:ETFC). All of these stocks' market caps resemble CF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSL,8,26026,0 LW,33,438896,4 UGI,19,317167,-1 ETFC,39,875017,-4 Average,24.75,414277,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $956 million in CF's case. E*TRADE Financial Corporation (NASDAQ:ETFC) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 8 bullish hedge fund positions. CF Industries Holdings, Inc. (NYSE:CF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CF were disappointed as the stock returned -5.5% during the fourth quarter (through the end of November) 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
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