We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of CoreCivic, Inc. (NYSE:CXW).
CoreCivic, Inc. (NYSE:CXW) has experienced an increase in enthusiasm from smart money recently. CXW was in 25 hedge funds' portfolios at the end of December. There were 19 hedge funds in our database with CXW holdings at the end of the previous quarter. Our calculations also showed that CXW isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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 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 stocks that are in our short portfolio.
[caption id="attachment_42139" align="aligncenter" width="400"] Ken Heebner of Capital Growth Management[/caption]
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 this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a glance at the recent hedge fund action encompassing CoreCivic, Inc. (NYSE:CXW).
What does smart money think about CoreCivic, Inc. (NYSE:CXW)?
At Q4's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in CXW over the last 18 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of CoreCivic, Inc. (NYSE:CXW), with a stake worth $91.5 million reported as of the end of September. Trailing Renaissance Technologies was Capital Growth Management, which amassed a stake valued at $36.4 million. Arrowstreet Capital, Intrinsic Edge Capital, and Two Sigma Advisors 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 Capital Growth Management allocated the biggest weight to CoreCivic, Inc. (NYSE:CXW), around 2.94% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, dishing out 1.86 percent of its 13F equity portfolio to CXW.
As one would reasonably expect, key money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in CoreCivic, Inc. (NYSE:CXW). Marshall Wace LLP had $5.3 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also made a $1.1 million investment in the stock during the quarter. The other funds with brand new CXW positions are Ali Motamed's Invenomic Capital Management, Boaz Weinstein's Saba Capital, and Joel Greenblatt's Gotham Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CoreCivic, Inc. (NYSE:CXW) but similarly valued. We will take a look at BGC Partners, Inc. (NASDAQ:BGCP), Shenandoah Telecommunications Company (NASDAQ:SHEN), Installed Building Products Inc (NYSE:IBP), and Compass Minerals International, Inc. (NYSE:CMP). All of these stocks' market caps match CXW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BGCP,27,292768,5 SHEN,10,81260,-7 IBP,24,178875,3 CMP,13,164740,-2 Average,18.5,179411,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $199 million in CXW's case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 10 bullish hedge fund positions. CoreCivic, Inc. (NYSE:CXW) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CXW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CXW were disappointed as the stock returned -41.2% during the same time period 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 so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.