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Cosan Limited (CZZ): Hedge Fund Sentiment Is Near All Time Low

Debasis Saha

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Cosan Limited (NYSE:CZZ) 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.

Cosan Limited (NYSE:CZZ) has experienced a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that CZZ isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26340" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]

CITADEL INVESTMENT GROUP
CITADEL INVESTMENT GROUP

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a gander at the new hedge fund action encompassing Cosan Limited (NYSE:CZZ).

Hedge fund activity in Cosan Limited (NYSE:CZZ)

At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CZZ over the last 18 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is CZZ A Good Stock To Buy?
Is CZZ A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Cosan Limited (NYSE:CZZ), with a stake worth $205.6 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $40.9 million. Two Sigma Advisors, Millennium Management, and Citadel Investment Group 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 Qtron Investments allocated the biggest weight to Cosan Limited (NYSE:CZZ), around 0.84% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.26 percent of its 13F equity portfolio to CZZ.

Judging by the fact that Cosan Limited (NYSE:CZZ) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers who sold off their full holdings in the third quarter. Interestingly, Jerome L. Simon's Lonestar Capital Management dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, totaling about $4.1 million in stock. Michael Gelband's fund, ExodusPoint Capital, also dumped its stock, about $2.3 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.

Let's now review hedge fund activity in other stocks similar to Cosan Limited (NYSE:CZZ). We will take a look at Radian Group Inc (NYSE:RDN), Life Storage, Inc. (NYSE:LSI), Empire State Realty Trust Inc (NYSE:ESRT), and Silicon Laboratories (NASDAQ:SLAB). This group of stocks' market values match CZZ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDN,29,207932,5 LSI,20,217016,2 ESRT,18,115056,7 SLAB,26,87548,4 Average,23.25,156888,4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $300 million in CZZ's case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table. On the other hand Empire State Realty Trust Inc (NYSE:ESRT) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Cosan Limited (NYSE:CZZ) is even less popular than ESRT. Hedge funds dodged a bullet by taking a bearish stance towards CZZ. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately CZZ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CZZ investors were disappointed as the stock returned -42.2% during the same time period 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 so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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