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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Conduent Incorporated (NASDAQ:CNDT).
Is CNDT a good stock to buy now? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund bets went down by 5 lately. Conduent Incorporated (NASDAQ:CNDT) was in 16 hedge funds' portfolios at the end of September. The all time high for this statistic is 45. Our calculations also showed that CNDT 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.
At the moment there are dozens of gauges stock market investors employ to evaluate publicly traded companies. A duo of the less utilized gauges are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top investment managers can trounce the broader indices by a superb amount (see the details here).
Carl Icahn of Icahn Capital
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. Keeping this in mind we're going to analyze the recent hedge fund action regarding Conduent Incorporated (NASDAQ:CNDT).
Do Hedge Funds Think CNDT Is A Good Stock To Buy Now?
At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the second quarter of 2020. By comparison, 32 hedge funds held shares or bullish call options in CNDT a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Icahn Capital LP was the largest shareholder of Conduent Incorporated (NASDAQ:CNDT), with a stake worth $121.3 million reported as of the end of September. Trailing Icahn Capital LP was D E Shaw, which amassed a stake valued at $20.1 million. Two Sigma Advisors, Renaissance Technologies, and Arrowstreet Capital 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 Icahn Capital LP allocated the biggest weight to Conduent Incorporated (NASDAQ:CNDT), around 0.7% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to CNDT.
Since Conduent Incorporated (NASDAQ:CNDT) has faced a decline in interest from the smart money, it's easy to see that there lies a certain "tier" of money managers who sold off their positions entirely by the end of the third quarter. Intriguingly, Daniel S. Och's OZ Management cut the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $1.1 million in stock, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors was right behind this move, as the fund dumped about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Conduent Incorporated (NASDAQ:CNDT) but similarly valued. These stocks are National Western Life Group Inc. (NASDAQ:NWLI), GameStop Corp. (NYSE:GME), AAR Corp. (NYSE:AIR), SunOpta, Inc. (NASDAQ:STKL), Star Bulk Carriers Corp. (NASDAQ:SBLK), Noble Midstream Partners LP (NASDAQ:NBLX), and VBI Vaccines, Inc. (NASDAQ:VBIV). This group of stocks' market values are similar to CNDT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NWLI,7,10294,0 GME,28,164392,9 AIR,18,43968,-1 STKL,13,253119,0 SBLK,5,303910,-2 NBLX,1,1820,0 VBIV,11,191461,1 Average,11.9,138423,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $186 million in CNDT's case. GameStop Corp. (NYSE:GME) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NASDAQ:NBLX) is the least popular one with only 1 bullish hedge fund positions. Conduent Incorporated (NASDAQ:CNDT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CNDT is 38.4. 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. 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 still beat the market by 15.8 percentage points. Hedge funds were also right about betting on CNDT as the stock returned 59.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.