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Is CSX Corporation (CSX) A Good Stock To Buy According To Hedge Funds?

Nina Todic

Is CSX Corporation (NASDAQ:CSX) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

CSX Corporation (NASDAQ:CSX) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. CSX was in 46 hedge funds' portfolios at the end of the second quarter of 2019. There were 44 hedge funds in our database with CSX positions at the end of the previous quarter. Our calculations also showed that CSX isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

John Armitage Egerton Capital

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. We're going to view the recent hedge fund action regarding CSX Corporation (NASDAQ:CSX).

Hedge fund activity in CSX Corporation (NASDAQ:CSX)

At Q2's end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. By comparison, 52 hedge funds held shares or bullish call options in CSX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CSX Positions

The largest stake in CSX Corporation (NASDAQ:CSX) was held by Mantle Ridge LP, which reported holding $2944.3 million worth of stock at the end of March. It was followed by Egerton Capital Limited with a $513.4 million position. Other investors bullish on the company included Renaissance Technologies, Steadfast Capital Management, and Two Sigma Advisors.

As industrywide interest jumped, some big names have been driving this bullishness. Chilton Investment Company, managed by Richard Chilton, assembled the most outsized position in CSX Corporation (NASDAQ:CSX). Chilton Investment Company had $132.2 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $30.9 million investment in the stock during the quarter. The following funds were also among the new CSX investors: Matthew Tewksbury's Stevens Capital Management, Guy Shahar's DSAM Partners, and Perella Weinberg Partners.

Let's now take a look at hedge fund activity in other stocks similar to CSX Corporation (NASDAQ:CSX). We will take a look at The PNC Financial Services Group, Inc. (NYSE:PNC), Colgate-Palmolive Company (NYSE:CL), Dominion Energy, Inc. (NYSE:D), and Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG). This group of stocks' market valuations match CSX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNC,38,2671227,-2 CL,42,1858275,0 D,39,1228250,3 MUFG,12,65234,-2 Average,32.75,1455747,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1456 million. That figure was $4859 million in CSX's case. Colgate-Palmolive Company (NYSE:CL) is the most popular stock in this table. On the other hand Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks CSX Corporation (NASDAQ:CSX) is more popular among hedge funds. 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 CSX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CSX were disappointed as the stock returned -10.1% 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 among hedge funds as many of these stocks already outperformed the market in Q3. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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