U.S. markets open in 7 hours 14 minutes

Hedge Funds Aren’t Done Buying Cadence Bancorporation (CADE)

Abigail Fisher

In this article we will take a look at whether hedge funds think Cadence Bancorporation (NYSE:CADE) 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 Cadence Bancorporation (NYSE:CADE) going to take off soon? Hedge funds are buying. The number of bullish hedge fund positions improved by 7 recently. Our calculations also showed that CADE 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). CADE was in 29 hedge funds' portfolios at the end of March. There were 22 hedge funds in our database with CADE positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

[caption id="attachment_30668" align="aligncenter" width="394"] Richard Chilton of Chilton Investment Company[/caption]

CHILTON INVESTMENT COMPANY

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the latest hedge fund action encompassing Cadence Bancorporation (NYSE:CADE).

Hedge fund activity in Cadence Bancorporation (NYSE:CADE)

At Q1's end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CADE over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Diamond Hill Capital was the largest shareholder of Cadence Bancorporation (NYSE:CADE), with a stake worth $17.4 million reported as of the end of September. Trailing Diamond Hill Capital was Two Sigma Advisors, which amassed a stake valued at $7.6 million. Arrowstreet Capital, Forest Hill Capital, 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 Forest Hill Capital allocated the biggest weight to Cadence Bancorporation (NYSE:CADE), around 3.05% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, earmarking 1.12 percent of its 13F equity portfolio to CADE.

As aggregate interest increased, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Cadence Bancorporation (NYSE:CADE). Arrowstreet Capital had $6.6 million invested in the company at the end of the quarter. Richard Chilton's Chilton Investment Company also initiated a $1.3 million position during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, Paul Marshall and Ian Wace's Marshall Wace LLP, and Benjamin A. Smith's Laurion Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cadence Bancorporation (NYSE:CADE) but similarly valued. We will take a look at Rite Aid Corporation (NYSE:RAD), istar Inc (NYSE:STAR), Cooper Tire & Rubber Company (NYSE:CTB), and Aphria Inc. (NYSE:APHA). All of these stocks' market caps are closest to CADE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RAD,16,45558,6 STAR,14,111654,-1 CTB,20,83606,3 APHA,9,5469,0 Average,14.75,61572,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $66 million in CADE's case. Cooper Tire & Rubber Company (NYSE:CTB) is the most popular stock in this table. On the other hand Aphria Inc. (NYSE:APHA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Cadence Bancorporation (NYSE:CADE) 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on CADE as the stock returned 24.3% so far in Q2 (through the end of May) 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.

[company-follow-email id=1614184][/company-follow-email]

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

Related Content