At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards CMC Materials, Inc. (NASDAQ:CCMP) at the end of the second quarter and determine whether the smart money was really smart about this stock.
CMC Materials, Inc. (NASDAQ:CCMP) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. CMC Materials, Inc. (NASDAQ:CCMP) was in 23 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that CCMP isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Clint Carlson of Carlson Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a look at the recent hedge fund action surrounding CMC Materials, Inc. (NASDAQ:CCMP).
Hedge fund activity in CMC Materials, Inc. (NASDAQ:CCMP)
At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the first quarter of 2020. On the other hand, there were a total of 13 hedge funds with a bullish position in CCMP a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of CMC Materials, Inc. (NASDAQ:CCMP), with a stake worth $76.4 million reported as of the end of September. Trailing Royce & Associates was Carlson Capital, which amassed a stake valued at $45.7 million. Renaissance Technologies, Running Oak Capital, and Fisher Asset Management 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 Running Oak Capital allocated the biggest weight to CMC Materials, Inc. (NASDAQ:CCMP), around 1.83% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, dishing out 1.26 percent of its 13F equity portfolio to CCMP.
Now, key hedge funds were breaking ground themselves. Running Oak Capital, managed by Seth Cogswell, initiated the largest position in CMC Materials, Inc. (NASDAQ:CCMP). Running Oak Capital had $4.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, Jinghua Yan's TwinBeech Capital, and Ravee Mehta's Nishkama Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as CMC Materials, Inc. (NASDAQ:CCMP) but similarly valued. We will take a look at Qualys Inc (NASDAQ:QLYS), MSC Industrial Direct Co Inc (NYSE:MSM), Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC), Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), TFS Financial Corporation (NASDAQ:TFSL), AerCap Holdings N.V. (NYSE:AER), and Manpowergroup Inc (NYSE:MAN). All of these stocks' market caps match CCMP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QLYS,27,168061,10 MSM,30,389200,7 PAC,7,103052,2 IOVA,43,1341814,4 TFSL,11,122677,2 AER,30,934619,-2 MAN,34,377077,11 Average,26,490929,4.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $491 million. That figure was $163 million in CCMP's case. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 7 bullish hedge fund positions. CMC Materials, Inc. (NASDAQ:CCMP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CCMP is 61. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately CCMP wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CCMP investors were disappointed as the stock returned 2.3% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.