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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 Cinedigm Corp (NASDAQ:CIDM).
Cinedigm Corp (NASDAQ:CIDM) investors should pay attention to a decrease in hedge fund interest lately. Cinedigm Corp (NASDAQ:CIDM) was in 3 hedge funds' portfolios at the end of September. The all time high for this statistics is 8. There were 4 hedge funds in our database with CIDM positions at the end of the second quarter. Our calculations also showed that CIDM 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.
To most investors, hedge funds are seen as slow, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open at the moment, Our researchers hone in on the crème de la crème of this group, around 850 funds. It is estimated that this group of investors control most of the hedge fund industry's total capital, and by keeping an eye on their matchless stock picks, Insider Monkey has brought to light a number of investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Israel Englander of Millennium 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 10 most profitable companies in the world 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. Keeping this in mind let's view the recent hedge fund action regarding Cinedigm Corp (NASDAQ:CIDM).
What does smart money think about Cinedigm Corp (NASDAQ:CIDM)?
Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. By comparison, 1 hedge funds held shares or bullish call options in CIDM a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Cinedigm Corp (NASDAQ:CIDM) was held by Sabby Capital, which reported holding $2.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $0.1 million position. The only other hedge fund that is bullish on the company was Millennium Management.
Judging by the fact that Cinedigm Corp (NASDAQ:CIDM) has witnessed bearish sentiment from the smart money, logic holds that there was a specific group of money managers that slashed their full holdings last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $1 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund cut about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cinedigm Corp (NASDAQ:CIDM) but similarly valued. These stocks are Amtech Systems, Inc. (NASDAQ:ASYS), Twin Disc, Incorporated (NASDAQ:TWIN), First National Corporation (NASDAQ:FXNC), Inspired Entertainment, Inc. (NASDAQ:INSE), TRACON Pharmaceuticals Inc (NASDAQ:TCON), Randolph Bancorp, Inc. (NASDAQ:RNDB), and Hunt Companies Finance Trust, Inc. (NYSE:HCFT). All of these stocks' market caps are closest to CIDM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASYS,7,11347,-1 TWIN,4,14625,-4 FXNC,2,6506,0 INSE,5,14453,-2 TCON,5,22756,0 RNDB,2,613,0 HCFT,5,1880,0 Average,4.3,10311,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.3 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $3 million in CIDM's case. Amtech Systems, Inc. (NASDAQ:ASYS) is the most popular stock in this table. On the other hand First National Corporation (NASDAQ:FXNC) is the least popular one with only 2 bullish hedge fund positions. Cinedigm Corp (NASDAQ:CIDM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CIDM is 25.3. 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 28.1% in 2020 through November 23rd and surpassed the market again by 15.4 percentage points. Unfortunately CIDM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CIDM investors were disappointed as the stock returned 5.3% since the end of September (through 11/23) 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.