How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Crane Co. (NYSE:CR) and determine whether hedge funds had an edge regarding this stock.
Crane Co. (NYSE:CR) investors should be aware of an increase in support from the world's most elite money managers of late. Crane Co. (NYSE:CR) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CR 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.
To most shareholders, hedge funds are seen as worthless, old financial vehicles of yesteryear. While there are over 8000 funds trading today, Our experts look at the moguls of this club, approximately 850 funds. It is estimated that this group of investors watch over most of the hedge fund industry's total asset base, and by keeping an eye on their highest performing stock picks, Insider Monkey has determined numerous investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Arnaud Ajdler of Engine Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Keeping this in mind we're going to take a gander at the fresh hedge fund action surrounding Crane Co. (NYSE:CR).
How have hedgies been trading Crane Co. (NYSE:CR)?
At second quarter's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CR over the last 20 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, GAMCO Investors was the largest shareholder of Crane Co. (NYSE:CR), with a stake worth $98.3 million reported as of the end of September. Trailing GAMCO Investors was AQR Capital Management, which amassed a stake valued at $28.1 million. Arrowstreet Capital, Millennium Management, 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 GAMCO Investors allocated the biggest weight to Crane Co. (NYSE:CR), around 1.12% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, setting aside 0.4 percent of its 13F equity portfolio to CR.
As industrywide interest jumped, some big names were leading the bulls' herd. Tudor Investment Corp, managed by Paul Tudor Jones, created the biggest position in Crane Co. (NYSE:CR). Tudor Investment Corp had $1.3 million invested in the company at the end of the quarter. Parvinder Thiara's Athanor Capital also initiated a $1.2 million position during the quarter. The following funds were also among the new CR investors: Ray Dalio's Bridgewater Associates, Arnaud Ajdler's Engine Capital, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Crane Co. (NYSE:CR) but similarly valued. We will take a look at Advanced Drainage Systems Inc. (NYSE:WMS), Lithia Motors Inc (NYSE:LAD), Virgin Galactic Holdings, Inc. (NYSE:SPCE), Stantec Inc. (NYSE:STN), Fox Factory Holding Corp (NASDAQ:FOXF), Axis Capital Holdings Limited (NYSE:AXS), and The Timken Company (NYSE:TKR). All of these stocks' market caps are similar to CR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WMS,24,582674,-1 LAD,31,761672,4 SPCE,22,60327,10 STN,5,47552,-7 FOXF,13,132172,3 AXS,35,661585,3 TKR,31,302095,1 Average,23,364011,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $225 million in CR's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) is the least popular one with only 5 bullish hedge fund positions. Crane Co. (NYSE:CR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CR is 72.7. 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 positive signal but 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately CR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CR were disappointed as the stock returned -15.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.