Is Cognizant Technology Solutions Corporation (CTSH) Going to Burn These Hedge Funds?
We can judge whether Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Cognizant Technology Solutions Corporation (NASDAQ:CTSH) has experienced a decrease in enthusiasm from smart money in recent months. Our calculations also showed that CTSH isn't among the 30 most popular stocks among hedge funds.
In the eyes of most investors, hedge funds are perceived as slow, old investment tools of years past. While there are over 8000 funds trading at the moment, We look at the moguls of this club, around 750 funds. It is estimated that this group of investors oversee the lion's share of the smart money's total asset base, and by monitoring their unrivaled stock picks, Insider Monkey has revealed numerous investment strategies that have historically exceeded the market. Insider Monkey's flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the new hedge fund action regarding Cognizant Technology Solutions Corporation (NASDAQ:CTSH).
What does smart money think about Cognizant Technology Solutions Corporation (NASDAQ:CTSH)?
Heading into the third quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in CTSH a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Generation Investment Management, managed by David Blood and Al Gore, holds the most valuable position in Cognizant Technology Solutions Corporation (NASDAQ:CTSH). Generation Investment Management has a $662.9 million position in the stock, comprising 4.6% of its 13F portfolio. The second most bullish fund manager is Richard S. Pzena of Pzena Investment Management, with a $484.8 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Ken Griffin's Citadel Investment Group, Cliff Asness's AQR Capital Management and Donald Yacktman's Yacktman Asset Management.
Because Cognizant Technology Solutions Corporation (NASDAQ:CTSH) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of funds who were dropping their full holdings last quarter. Interestingly, Renaissance Technologies cut the biggest investment of the 750 funds followed by Insider Monkey, worth about $128.8 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dropped about $89.4 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 11 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Cognizant Technology Solutions Corporation (NASDAQ:CTSH). These stocks are Mizuho Financial Group Inc. (NYSE:MFG), Occidental Petroleum Corporation (NYSE:OXY), Manulife Financial Corporation (NYSE:MFC), and Marathon Petroleum Corporation (NYSE:MPC). This group of stocks' market caps match CTSH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MFG,6,22357,4 OXY,42,2688402,7 MFC,16,277367,0 MPC,60,3075008,-5 Average,31,1515784,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1516 million. That figure was $2283 million in CTSH's case. Marathon Petroleum Corporation (NYSE:MPC) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CTSH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CTSH were disappointed as the stock returned -4.6% during the third quarter 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far this year.
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.
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