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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 CNH Industrial NV (NYSE:CNHI).
Is CNHI a good stock to buy now? CNH Industrial NV (NYSE:CNHI) was in 18 hedge funds' portfolios at the end of September. The all time high for this statistic is 23. CNHI investors should pay attention to an increase in support from the world's most elite money managers lately. There were 17 hedge funds in our database with CNHI holdings at the end of June. Our calculations also showed that CNHI 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Gelband of ExodusPoint 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 fresh hedge fund action surrounding CNH Industrial NV (NYSE:CNHI).
Do Hedge Funds Think CNHI Is A Good Stock To Buy Now?
At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CNHI over the last 21 quarters. 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, Arrowstreet Capital was the largest shareholder of CNH Industrial NV (NYSE:CNHI), with a stake worth $79.2 million reported as of the end of September. Trailing Arrowstreet Capital was GAMCO Investors, which amassed a stake valued at $78.8 million. Balyasny Asset Management, Southeastern Asset Management, and Millennium Management 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 Iszo Capital allocated the biggest weight to CNH Industrial NV (NYSE:CNHI), around 1.26% of its 13F portfolio. Albar Capital is also relatively very bullish on the stock, setting aside 1.26 percent of its 13F equity portfolio to CNHI.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Iszo Capital, managed by Brian Sheehy, assembled the most outsized position in CNH Industrial NV (NYSE:CNHI). Iszo Capital had $2.5 million invested in the company at the end of the quarter. Javier Velazquez's Albar Capital also made a $2.5 million investment in the stock during the quarter. The following funds were also among the new CNHI investors: Charles Davidson and Joseph Jacobs's Wexford Capital, Michael Gelband's ExodusPoint Capital, and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks similar to CNH Industrial NV (NYSE:CNHI). We will take a look at CenterPoint Energy, Inc. (NYSE:CNP), DaVita Inc (NYSE:DVA), Lennox International Inc. (NYSE:LII), Enphase Energy Inc (NASDAQ:ENPH), Beyond Meat, Inc. (NASDAQ:BYND), Crown Holdings, Inc. (NYSE:CCK), and Packaging Corporation Of America (NYSE:PKG). This group of stocks' market caps resemble CNHI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNP,20,413380,-10 DVA,34,3543745,-1 LII,34,333588,10 ENPH,42,1045304,2 BYND,24,393648,-5 CCK,47,1487437,-4 PKG,23,158069,-2 Average,32,1053596,-1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1054 million. That figure was $289 million in CNHI's case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand CenterPoint Energy, Inc. (NYSE:CNP) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks CNH Industrial NV (NYSE:CNHI) is even less popular than CNP. Our overall hedge fund sentiment score for CNHI is 29.5. 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. Hedge funds clearly dropped the ball on CNHI as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on CNHI as the stock returned 40.2% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
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