Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about Cognizant Technology Solutions Corp (NASDAQ:CTSH).
Is Cognizant Technology Solutions Corp (NASDAQ:CTSH) undervalued? Money managers are becoming less confident. The number of bullish hedge fund positions decreased by 1 lately. Our calculations also showed that CTSH isn't among the 30 most popular stocks among hedge funds.
If you'd ask most investors, hedge funds are perceived as underperforming, old financial vehicles of the past. While there are over 8000 funds trading at present, Our experts look at the top tier of this club, about 750 funds. These investment experts orchestrate most of the smart money's total asset base, and by following their finest investments, Insider Monkey has brought to light numerous investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship hedge fund strategy outstripped the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
Let's go over the fresh hedge fund action encompassing Cognizant Technology Solutions Corp (NASDAQ:CTSH).
What have hedge funds been doing with Cognizant Technology Solutions Corp (NASDAQ:CTSH)?
At the end of the fourth quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the second quarter of 2018. By comparison, 51 hedge funds held shares or bullish call options in CTSH a year ago. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Cognizant Technology Solutions Corp (NASDAQ:CTSH) was held by Pzena Investment Management, which reported holding $482.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $345.9 million position. Other investors bullish on the company included GLG Partners, Alyeska Investment Group, and Two Sigma Advisors.
Judging by the fact that Cognizant Technology Solutions Corp (NASDAQ:CTSH) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedgies that elected to cut their entire stakes in the third quarter. Intriguingly, John Smith Clark's Southpoint Capital Advisors sold off the largest investment of the 700 funds followed by Insider Monkey, worth about $96.4 million in stock. Alok Agrawal's fund, Bloom Tree Partners, also dropped its stock, about $48.8 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Cognizant Technology Solutions Corp (NASDAQ:CTSH) but similarly valued. We will take a look at Keurig Dr Pepper Inc. (NYSE:KDP), The Blackstone Group L.P. (NYSE:BX), Capital One Financial Corp. (NYSE:COF), and Carnival Corporation (NYSE:CCL). This group of stocks' market values match CTSH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KDP,21,566206,-4 BX,33,509703,-2 COF,44,1858232,-3 CCL,39,909537,3 Average,34.25,960920,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $961 million. That figure was $2069 million in CTSH's case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand Keurig Dr Pepper Inc. (NYSE:KDP) is the least popular one with only 21 bullish hedge fund positions. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on CTSH, though not to the same extent, as the stock returned 13.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.