In this article we will take a look at whether hedge funds think Canon Inc. (NYSE:CAJ) 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.
Canon Inc. (NYSE:CAJ) has seen a decrease in enthusiasm from smart money in recent months. Our calculations also showed that CAJ 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.
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_365194" align="aligncenter" width="395"] David E. Shaw of D.E. Shaw[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind we're going to go over the fresh hedge fund action regarding Canon Inc. (NYSE:CAJ).
How have hedgies been trading Canon Inc. (NYSE:CAJ)?
Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CAJ over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Canon Inc. (NYSE:CAJ), which was worth $35.7 million at the end of the third quarter. On the second spot was LMR Partners which amassed $6.3 million worth of shares. D E Shaw, Arrowstreet 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 LMR Partners allocated the biggest weight to Canon Inc. (NYSE:CAJ), around 0.52% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to CAJ.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Balyasny Asset Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CAJ as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Canon Inc. (NYSE:CAJ) but similarly valued. These stocks are Equity Residential (NYSE:EQR), Square, Inc. (NYSE:SQ), T. Rowe Price Group, Inc. (NASDAQ:TROW), and Verisk Analytics, Inc. (NASDAQ:VRSK). This group of stocks' market caps match CAJ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQR,24,175386,-6 SQ,56,1609151,0 TROW,24,191083,-3 VRSK,31,924894,-2 Average,33.75,725129,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $725 million. That figure was $47 million in CAJ's case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Equity Residential (NYSE:EQR) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Canon Inc. (NYSE:CAJ) is even less popular than EQR. Hedge funds dodged a bullet by taking a bearish stance towards CAJ. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately CAJ wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CAJ investors were disappointed as the stock returned 0% during the second quarter (through June 10th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.