Is Cree, Inc. (NASDAQ:CREE) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Cree, Inc. (NASDAQ:CREE) a cheap investment right now? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund positions were trimmed by 2 in recent months. Our calculations also showed that CREE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's go over the key hedge fund action surrounding Cree, Inc. (NASDAQ:CREE).
Hedge fund activity in Cree, Inc. (NASDAQ:CREE)
At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the second quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in CREE a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Iridian Asset Management held the most valuable stake in Cree, Inc. (NASDAQ:CREE), which was worth $128.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $52.6 million worth of shares. D E Shaw, Columbus Circle Investors, and Millennium 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 Banbury Partners allocated the biggest weight to Cree, Inc. (NASDAQ:CREE), around 6.4% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, dishing out 2.01 percent of its 13F equity portfolio to CREE.
Since Cree, Inc. (NASDAQ:CREE) has witnessed declining sentiment from the smart money, it's easy to see that there lies a certain "tier" of hedgies that elected to cut their entire stakes last quarter. It's worth mentioning that Alex Sacerdote's Whale Rock Capital Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $51.2 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also said goodbye to its stock, about $5.9 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Cree, Inc. (NASDAQ:CREE). We will take a look at Dynatrace, Inc. (NYSE:DT), Enable Midstream Partners LP (NYSE:ENBL), Popular Inc (NASDAQ:BPOP), and First Citizens BancShares Inc. (NASDAQ:FCNCA). This group of stocks' market valuations are closest to CREE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DT,20,147275,20 ENBL,5,27783,-2 BPOP,29,752647,-1 FCNCA,16,161401,-1 Average,17.5,272277,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $357 million in CREE's case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 5 bullish hedge fund positions. Cree, Inc. (NASDAQ:CREE) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CREE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CREE were disappointed as the stock returned -9.8% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.