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Is CONE A Good Stock To Buy According To Hedge Funds?

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Reymerlyn Martin
·6 min read
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In this article we will take a look at whether hedge funds think CyrusOne Inc (NASDAQ:CONE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is CONE a good stock to buy? CyrusOne Inc (NASDAQ:CONE) was in 30 hedge funds' portfolios at the end of September. The all time high for this statistic is 35. CONE investors should be aware of an increase in support from the world's most elite money managers in recent months. There were 25 hedge funds in our database with CONE positions at the end of the second quarter. Our calculations also showed that CONE 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.

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 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 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.

Peter Algert of Algert Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. With all of this in mind we're going to take a peek at the latest hedge fund action encompassing CyrusOne Inc (NASDAQ:CONE).

Do Hedge Funds Think CONE Is A Good Stock To Buy Now?

At Q3's end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CONE over the last 21 quarters. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of CyrusOne Inc (NASDAQ:CONE), with a stake worth $151.9 million reported as of the end of September. Trailing Citadel Investment Group was Moore Global Investments, which amassed a stake valued at $30.4 million. Point72 Asset Management, Millennium Management, and Fisher Asset 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 Marlowe Partners allocated the biggest weight to CyrusOne Inc (NASDAQ:CONE), around 6.96% of its 13F portfolio. Provenire Capital is also relatively very bullish on the stock, dishing out 0.86 percent of its 13F equity portfolio to CONE.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Intrinsic Edge Capital, managed by Mark Coe, initiated the most valuable position in CyrusOne Inc (NASDAQ:CONE). Intrinsic Edge Capital had $6.4 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $1.8 million position during the quarter. The following funds were also among the new CONE investors: Peter Algert's Algert Global, Alec Litowitz and Ross Laser's Magnetar Capital, and Noam Gottesman's GLG Partners.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as CyrusOne Inc (NASDAQ:CONE) but similarly valued. We will take a look at Cna Financial Corporation (NYSE:CNA), Westlake Chemical Corporation (NYSE:WLK), Gaming and Leisure Properties Inc (NASDAQ:GLPI), Bill.com Holdings, Inc. (NYSE:BILL), BorgWarner Inc. (NYSE:BWA), Snap-on Incorporated (NYSE:SNA), and Dropbox, Inc. (NASDAQ:DBX). All of these stocks' market caps are similar to CONE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNA,17,59910,5 WLK,26,148658,-3 GLPI,30,634369,-5 BILL,44,1554533,-8 BWA,30,797912,-5 SNA,24,407096,4 DBX,43,992075,-8 Average,30.6,656365,-2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.6 hedge funds with bullish positions and the average amount invested in these stocks was $656 million. That figure was $342 million in CONE's case. Bill.com Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 17 bullish hedge fund positions. CyrusOne Inc (NASDAQ:CONE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CONE is 59.8. 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 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 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately CONE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CONE investors were disappointed as the stock returned 0.5% since the end of September (through 12/18) 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 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.

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