We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Cinemark Holdings, Inc. (NYSE:CNK) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Cinemark Holdings, Inc. (NYSE:CNK) has seen a decrease in enthusiasm from smart money recently. Our calculations also showed that CNK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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_746830" align="aligncenter" width="400"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the recent hedge fund action regarding Cinemark Holdings, Inc. (NYSE:CNK).
How are hedge funds trading Cinemark Holdings, Inc. (NYSE:CNK)?
At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the third quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in CNK a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the biggest position in Cinemark Holdings, Inc. (NYSE:CNK). Renaissance Technologies has a $133.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Millennium Management, managed by Israel Englander, which holds a $15.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise Cliff Asness's AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and David Harding's Winton Capital Management. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Cinemark Holdings, Inc. (NYSE:CNK), around 0.81% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to CNK.
Because Cinemark Holdings, Inc. (NYSE:CNK) has faced declining sentiment from the smart money, it's safe to say that there were a few money managers that decided to sell off their full holdings in the third quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP said goodbye to the largest stake of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $6 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund dropped about $4.5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 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 Cinemark Holdings, Inc. (NYSE:CNK) but similarly valued. These stocks are RBC Bearings Incorporated (NASDAQ:ROLL), TriNet Group Inc (NYSE:TNET), Tenet Healthcare Corp (NYSE:THC), and LendingTree, Inc (NASDAQ:TREE). This group of stocks' market caps match CNK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROLL,10,48753,3 TNET,20,388310,-1 THC,34,1170950,8 TREE,26,104147,3 Average,22.5,428040,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $219 million in CNK's case. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 10 bullish hedge fund positions. Cinemark Holdings, Inc. (NYSE:CNK) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CNK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CNK investors were disappointed as the stock returned -72.2% during the same time period 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.