How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cooper Tire & Rubber Company (NYSE:CTB) and determine whether hedge funds had an edge regarding this stock.
Cooper Tire & Rubber Company (NYSE:CTB) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. Our calculations also showed that CTB isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to go over the key hedge fund action regarding Cooper Tire & Rubber Company (NYSE:CTB).
How have hedgies been trading Cooper Tire & Rubber Company (NYSE:CTB)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in CTB a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in Cooper Tire & Rubber Company (NYSE:CTB), which was worth $26.6 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $11.5 million worth of shares. Arrowstreet Capital, Sandbar Asset Management, and D E Shaw 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 Sandbar Asset Management allocated the biggest weight to Cooper Tire & Rubber Company (NYSE:CTB), around 4.38% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, dishing out 2.48 percent of its 13F equity portfolio to CTB.
As one would reasonably expect, key money managers have jumped into Cooper Tire & Rubber Company (NYSE:CTB) headfirst. Sandbar Asset Management, managed by Michael Cowley, initiated the largest position in Cooper Tire & Rubber Company (NYSE:CTB). Sandbar Asset Management had $6.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $2.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Mike Vranos's Ellington, Benjamin A. Smith's Laurion Capital Management, and Joel Greenblatt's Gotham Asset Management.
Let's also examine hedge fund activity in other stocks similar to Cooper Tire & Rubber Company (NYSE:CTB). These stocks are Aphria Inc. (NASDAQ:APHA), Veoneer, Inc. (NYSE:VNE), Independence Realty Trust Inc (NYSE:IRT), and EnPro Industries, Inc. (NYSE:NPO). This group of stocks' market valuations are closest to CTB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APHA,9,5469,0 VNE,11,76220,0 IRT,16,88076,9 NPO,14,103189,0 Average,12.5,68239,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $84 million in CTB's case. Independence Realty Trust Inc (NYSE:IRT) is the most popular stock in this table. On the other hand Aphria Inc. (NASDAQ:APHA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Cooper Tire & Rubber Company (NYSE:CTB) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on CTB as the stock returned 96.6% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.