Is CPI Aerostructures, Inc. (NYSE:CVU) 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.
Hedge fund interest in CPI Aerostructures, Inc. (NYSE:CVU) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CVU to other stocks including Aqua Metals, Inc. (NASDAQ:AQMS), Fortress Biotech Inc (NASDAQ:FBIO), and Cortland Bancorp (NASDAQ:CLDB) to get a better sense of its popularity. Video: Click the image to 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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to review the recent hedge fund action regarding CPI Aerostructures, Inc. (NYSE:CVU).
How are hedge funds trading CPI Aerostructures, Inc. (NYSE:CVU)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVU over the last 17 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of CPI Aerostructures, Inc. (NYSE:CVU), with a stake worth $6.3 million reported as of the end of September. Trailing Royce & Associates was Ariel Investments, which amassed a stake valued at $2.6 million. Ancora Advisors, Renaissance Technologies, and Springbok Capital 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 Royce & Associates allocated the biggest weight to CPI Aerostructures, Inc. (NYSE:CVU), around 0.06% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to CVU.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now take a look at hedge fund activity in other stocks similar to CPI Aerostructures, Inc. (NYSE:CVU). These stocks are Aqua Metals, Inc. (NASDAQ:AQMS), Fortress Biotech Inc (NASDAQ:FBIO), Cortland Bancorp (NASDAQ:CLDB), and TransGlobe Energy Corporation (NASDAQ:TGA). This group of stocks' market caps resemble CVU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AQMS,5,687,0 FBIO,8,4865,1 CLDB,3,13737,0 TGA,3,6551,-1 Average,4.75,6460,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $10 million in CVU's case. Fortress Biotech Inc (NASDAQ:FBIO) is the most popular stock in this table. On the other hand Cortland Bancorp (NASDAQ:CLDB) is the least popular one with only 3 bullish hedge fund positions. CPI Aerostructures, Inc. (NYSE:CVU) 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 CVU wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CVU were disappointed as the stock returned -16.2% 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.