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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Cognex Corporation (NASDAQ:CGNX) based on that data and determine whether they were really smart about the stock.
Is Cognex Corporation (NASDAQ:CGNX) a bargain? Hedge funds were taking an optimistic view. The number of bullish hedge fund bets went up by 10 recently. Cognex Corporation (NASDAQ:CGNX) was in 26 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. Our calculations also showed that CGNX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 16 hedge funds in our database with CGNX positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to check out the fresh hedge fund action surrounding Cognex Corporation (NASDAQ:CGNX).
What have hedge funds been doing with Cognex Corporation (NASDAQ:CGNX)?
At Q2's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 63% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in CGNX a year ago. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Cognex Corporation (NASDAQ:CGNX), with a stake worth $54.6 million reported as of the end of September. Trailing Royce & Associates was Polar Capital, which amassed a stake valued at $49.2 million. AQR Capital Management, Balyasny Asset Management, 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 PDT Partners allocated the biggest weight to Cognex Corporation (NASDAQ:CGNX), around 1.08% of its 13F portfolio. Miura Global Management is also relatively very bullish on the stock, earmarking 0.96 percent of its 13F equity portfolio to CGNX.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Cognex Corporation (NASDAQ:CGNX). Arrowstreet Capital had $17.3 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $10.9 million position during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, Renaissance Technologies, and Pasco Alfaro / Richard Tumure's Miura Global Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Cognex Corporation (NASDAQ:CGNX) but similarly valued. These stocks are Korea Electric Power Corporation (NYSE:KEP), W.R. Berkley Corporation (NYSE:WRB), Celanese Corporation (NYSE:CE), Discovery Inc. (NASDAQ:DISCA), Concho Resources Inc. (NYSE:CXO), Lyft, Inc. (NASDAQ:LYFT), and Zendesk Inc (NYSE:ZEN). All of these stocks' market caps resemble CGNX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KEP,3,25664,-4 WRB,27,350226,1 CE,33,694892,4 DISCA,29,276418,-3 CXO,44,963633,13 LYFT,30,324369,-1 ZEN,63,1579039,8 Average,32.7,602034,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $602 million. That figure was $267 million in CGNX's case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 3 bullish hedge fund positions. Cognex Corporation (NASDAQ:CGNX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CGNX is 57. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately CGNX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CGNX investors were disappointed as the stock returned 3.3% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.